2021 Annual Report Sustainably feed all Australians to help them lead healthier, happier lives.

Coles Group Limited ABN 11 004 089 936

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Aboriginal and Torres Strait Islander peoples are advised that this document may contain names and images of people who are deceased.

All references to Indigenous people in this document are intended to include Aboriginal and/or Torres Strait Islander peoples.

Forward-looking statements

This report contains forward-looking statements in relation to Coles Readers are cautioned not to place undue reliance on forward- Group Limited (‘the Company’) and its controlled entities looking statements, which speak only as at the date of issue. Except (collectively, ‘Coles’, ‘Coles Group’ or ‘the Group’), including as required by applicable laws or regulations, the Group does not statements regarding the Group’s intent, belief, goals, objectives, undertake any obligation to publicly update or revise any of the initiatives, commitments or current expectations with respect to the forward-looking statements or to advise of any change in Group’s business and operations, market conditions, results of assumptions on which any such statement is based. Past operations and financial conditions, and risk management practices. performance cannot be relied on as a guide to future performance. This report also includes forward-looking statements regarding climate change and other environmental and energy transition Non-IFRS Information scenarios. Forward-looking statements can generally be identified This report contains IFRS and non-IFRS financial information. IFRS by the use of words such as ‘forecast’, ‘estimate’, ‘plan’, ‘will’, financial information is financial information that is presented in ‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’, ‘intend’, ‘outlook’, accordance with all relevant accounting standards. Retail or non- ‘guidance’ and other similar expressions. IFRS financial information is financial information that is not defined Any forward-looking statements are based on the Group’s good- or specified under any relevant accounting standards and may not faith assumptions as to the financial, market, risk, regulatory and be directly comparable with other companies’ information. other relevant environments that will exist and affect the Group’s Any non-IFRS financial information included in this report has been business and operations in the future. The Group does not give any labelled to differentiate it from statutory or IFRS financial information. assurance that the assumptions will prove to be correct. The Non-IFRS measures are used by management to assess and monitor forward-looking statements involve known and unknown risks, business performance at the Group and segment level and should be uncertainties and assumptions and other important factors, many of considered in addition to, and not as a substitute for, IFRS which are beyond the reasonable control of the Group, that could information. Non-IFRS information is not subject to audit or review. cause the actual results, performances or achievements of the Group to be materially different from the relevant statements. There Other Information are also limitations with respect to scenario analysis, and it is difficult to predict which, if any, of the scenarios might eventuate. Scenario Photographs in our Annual Report may have been taken when analysis is not an indication of probable outcomes and relies on COVID-19 restrictions were not in place. assumptions that may or may not prove to be correct or eventuate. FRONT COVER: team member Laura brings groceries to a customer’s car as part of the Click & Collect (to the boot of the car) service.

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Contents Overview 2021 performance 4 2021 highlights 5 Message from the Chairman 6 Managing Director and Chief Executive Officer’s report 8 Our vision, purpose and strategy 11 Sustainability at Coles 13 Governance at Coles 18 Operating and Financial Review 22 Board of Directors: Biographical Details 51 Directors’ Report 53 Remuneration Report 57 Financial Report 76 Independent Auditor’s Report 121 Shareholder Information 129 Corporate Directory 131

Welcome to the Coles Group 2021 Annual Report

From our origins in 1914 as a variety store, Coles has become a leading, trusted Australian retailer.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM Coles Group Limited 2021 Annual Report Our purpose is to sustainably feed all Australians to help them lead healthier, happier lives.

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2021 performance

3.1% $1.9bn $1.0bn Sales growth EBIT Net profit after tax

$355m 106% 61.0c Net debt 1 Cash realisation2 Dividends per share3

2.3 points $300m 15.7% Improvement in Smarter Selling benefits Improvement in supermarkets NPS4 total recordable injury frequency rate5

1 Excluding lease liabilities. 2 Calculated as operating cash flow excluding interest and tax, divided by EBITDA. 3 Comprising an interim dividend of 33.0 cents per share (paid) and a final dividend of 28.0 cents per share. This represents a 6.1% increase in fully franked dividends in respect of the year. 4 Net Promoter Score. 5 Refer to glossary of terms on page 35 for definition.

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2021 highlights Overview Operating and Financial Review Financial and Operating

Products on everyday eCommerce sales reached Australia’s Report Directors’ low prices most preferred 5,280 $2.1bn loyalty program Remuneration Report Remuneration

Progress on Q4 penetration Click & Collect to the Report Financial automation Exclusive to Coles products boot of the car with Witron and Ocado 32% >500 sites Shareholder Information

Provided more than Launched 2.3pp $143m (percentage point) in community support Sustainability Strategy increase women in leadership

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Message from the Chairman

In challenging times as a nation we have come together and, at Coles, we have seen first-hand the successes of our commitment to working together. We achieved considerable progress in both short-term performance and in our investment in longer-term commitments.

Dear Shareholder,

This past year has significantly challenged the whole Australian community as we have responded to the impacts of COVID-19 and the disruption to everyday traditional activities marked by lockdowns, travel restrictions, isolation and associated health impacts of the virus.

At Coles, we have worked closely with the State and Federal Governments, health authorities, community groups and our team members and suppliers, to ensure that Australians could safely and assuredly continue to enjoy ready access to food, liquor and fuel without disruption. Pleasingly, we have been able to adapt to changing customer and community expectations in a manner which has seen increased levels of trust in Coles. This is important as our overarching vision is to build trust and to grow long-term shareholder value.

As we reflect upon the 2021 financial year, we achieved considerable progress in both short-term performance and in our investment in longer-term commitments. We recorded sales for the year of $38.6 billion, which was a 3.1% increase on the previous year, which itself had reflected elevated sales due to the earlier responses to the pandemic. We also saw a 7.5% increase in net profit after tax, excluding FY20 significant items, to $1,005 million which underpinned a 6.1% increase in fully franked dividends for the year. Total Dividends Despite ongoing costs incurred in responding to community health concerns we were able to strengthen our operations with a further $300 million of benefits achieved during the year under our targeted Smarter Selling program. This also helped support our increased % investment in online capacity and associated infrastructure as we saw 6.1 substantial growth in customer demand for home deliveries and contactless Click & Collect services to the boot of the car, now available Group sales in more than 500 stores.

These increased levels of activity have been accompanied by continued improvement in our total safety performance as a result of a clear focus in identifying opportunities for improving working $38.6bn patterns, training and having an embedded safety culture. For the year

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Sundrop Farms, in Port Augusta, South Australia, uses solar energy and desalinated water from the Spencer Gulf to grow truss tomatoes for Coles. Directors’ Report Directors’ we saw a 15.7% reduction in the injury rate we consistently measure - In challenging times as a nation we have come together and at Coles total recordable injury frequency rate. We will continue to strive for we have seen first-hand the successes of our working together further improvements in the year ahead. commitment from your Board, the management team under the leadership of our CEO, Steven Cain, and importantly from all of our During the year we were pleased to make significant progress in the 120,000-plus team members. To each of whom I express my special development of our major technology projects and especially the thanks for the significant contributions made. construction milestones met in both our two automated distribution centres in Queensland and New South Wales, in With the vaccination rates now increasing across all of our community Report Remuneration partnership with Witron, and our two customer fulfilment centres and the anticipation of open borders within Australia and in and Sydney, in partnership with Ocado. These internationally, we look forward to the continuing growth of our projects are important in improving our future business efficiency economy with optimism. and customer engagement. The operating environment across our business is dynamic and with increasing focus upon automation and the use of digital data we aim to ensure that we are well placed to meet the future needs of our customers. Financial Report Financial Two highlights for the year were the resetting of our goals as we James Graham AM seek to become Australia’s most sustainable supermarket and our Chairman, continuing engagement in projects in support of the communities Coles Group Limited in which we operate across the nation.

In March 2021, we launched Together to Zero which sets out our goals

to achieve zero emissions, zero waste and zero hunger. These are Shareholder Information updated and significant targets which we believe are necessary and achievable for us as a major Australian company, with our business serving nearly everyone across the country.

In addition, the 2021 financial year was one where we again contributed widely to the Australian community. Through our longstanding partnerships with SecondBite and Foodbank, during the year we provided the equivalent of 35.8 million meals through community rescue organisations across the nation to Australians in need; we also saw our contributions to the children’s cancer charity, Redkite, surpass $40 million since our initial engagement eight years ago; and, we undertook our largest single fundraising with the support of our customers and Australian pork farmers in raising $6.7 million in just six weeks in support of the FightMND campaign to aid research into motor neurone disease.

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Managing Director and Chief Executive Officer’s report

Two years into our transformation program, we have set strong foundations that will help us to grow trust and long-term shareholder value, with significant progress recorded against each of our strategic pillars.

Working collaboratively to keep our community safe Click & Collect, where one of our team members will pack customers’ shopping into the boot of their car. COVID-19 continued to present challenges during the 2021 financial year, with our 120,000-plus team members and thousands of We also accelerated the development of our Liquor eCommerce and Australian suppliers again demonstrating tremendous resilience as omnichannel capabilities, opening three eCommerce ‘dark stores’ to we worked together to ensure the security of food supply and a safe provide additional capacity to fulfil customer orders. environment for our customers. At , fuel volumes were impacted as COVID-19 restrictions In addition to the enhanced cleaning and hygiene measures continued to reduce traffic on the road but, despite this, strong introduced in the previous financial year, we continued to work with convenience store sales and cost control helped deliver a satisfactory government health authorities to implement further initiatives in our result. stores and throughout our supply chains, including the introduction In recognition of the tremendous efforts of our team, we again of QR Code check-ins. doubled the team member discount on shopping at Coles for those The path towards a safer Australia in which we can all enjoy a more working in lockdown zones. On behalf of the leadership team, I normal lifestyle depends on the success of the vaccination program. would like to express our deep gratitude for the way that team We have encouraged all of our team members to be vaccinated members across the country have met the challenges the year against COVID-19 as soon as they can, subject to health advice. To presented, while living our Coles values of Customer obsession, make it easier for them to access vaccination, we have partnered Passion and pace, Responsibility, and Health and happiness. with the State and Federal Governments to provide COVID-19 Inspire Customers vaccinations on-site at our distribution centres and manufacturing facilities to eligible team members, and provided access to paid I am pleased to report that our team’s efforts have also been personal leave while they are attending vaccination appointments. appreciated by our customers, with Supermarkets and Liquor both posting improvements in Net Promoter Score across the year, while As our dedicated team members continue to work hard in their analysis from Roy Morgan ranked Coles as one of Australia’s most capacity as essential service providers, I would like to thank all levels trusted consumer brands. of government for their ongoing support to help keep them safe. We ceased door-to-door delivery of paper catalogues – the first While working from home and the periodic closure of hospitality mainstream Australian supermarket to do so – underlining our venues continued to amplify demand for food and liquor, we saw a commitment not only to sustainability by removing 260 million reduction in panic buying across the course of the year as the catalogues every year from the waste stream, but also to using our community became increasingly accustomed to the need for technological capability for more direct, personalised and relevant lockdowns, and more confident in the Australian food supply chain. engagement with our customers through our digital platforms With more customers wanting or needing to do their grocery including coles&co, which showcases our great value specials and shopping online, we increased our investment in capacity, with inspirational recipes. same-day home delivery now available from more than 300 Coles By the end of the financial year, we had tailored 30% of store layouts supermarkets, while more than 500 stores now have contact-free to better suit the needs of customers, while completing more than

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Along with our community partners, we launched Together to Zero at the opening of our Moonee Ponds sustainability concept store. Pictured from left to right are SecondBite co-founder Simone Carson, Coles Group CEO Steven Cain, Coles General Manager Corporate Affairs Sally Fielke, Store Manager Vignesh, Flemington Food Pantry co-ordinator Marcus Curnow, Stan Yarramunua who performed a Welcome to Country ceremony, Coles Chief Sustainability, Property & Export Officer Thinus Keeve, Coles Head of Indigenous Affairs Cristilee Houghton and Indigenous artist Nikita Ridgeway.

650 range changes in categories such as impulse, homecare and In our Store Support Centre, we implemented new people and Report Directors’ health and beauty, driving improvements in customer feedback payroll systems, replacing more than 16 legacy systems and throughout the year. simplifying ways of working for our team.

We have progressed our trusted and targeted value strategy, placing Construction has progressed on our two distribution centres being a net 474 new products on everyday low prices during the year, while built by global automation experts Witron, with the New South customers increasingly embrace our Exclusive to Coles products, Wales site underway and the majority of the structural building work

which accounted for 32% of sales by value, up from 29% in FY19. completed on the Queensland facility, while the Ocado customer Report Remuneration fulfilment centres being built for Coles Online in Melbourne and Customer demand for more convenient and healthy meal solutions Sydney are also progressing well. continued to grow. Our expanded Coles Kitchen offering, including the ‘Balanced for you’ health range, is now available in more than 300 We have made further progress in tailoring our supermarket store stores, while our new range of nutritionist-approved frozen sports formats to the needs of our customers, completing 65 renewals nutrition meals under the Coles PerForm brand is available nationally. during the year, including 10 Format A, 36 Format C and four supermarkets, including the first Queensland Coles Local store Coles Liquor has made significant progress in the first year of its in Ascot.

refreshed strategy to be a simpler, more accessible, locally relevant Report Financial drinks specialist, reshaping stores so they’re easier for customers to In Liquor, the Market format has now been rolled shop, delivering trusted value by lowering prices for longer, and out to 79% of the network, while trials of new formats for targeting range changes in key growth categories like local craft beers and are resonating well with customers and team and gins, as well as low- or no-alcohol alternatives. members.

Our portfolio of Exclusive Liquor Brands continues to win accolades, Win Together

bringing home a total of 479 medals and awards during the year, up Shareholder Information more than 100 from the previous year’s count. As part of our ambition to be Australia’s most sustainable supermarket, in the second half of FY21 we announced our detailed Smarter Selling Sustainability Strategy, grouped under the focus areas of ‘Together to Zero’ and ‘Better Together’. We are driving efficiency in all parts of our business as part of our Smarter Selling program, which has now delivered total cumulative The strategy sets out our ambitions across the key sustainability savings in excess of $550 million over the past two years, including areas of climate change, waste and hunger, including commitments approximately $300 million in FY21. for Coles Group to be powered by 100% renewable electricity by the end of FY25 and to set a course to net zero greenhouse gas emissions This included the introduction of new technology to help our stores by 2050. forecast demand and improve availability for customers, using artificial intelligence to help manage markdowns, logistics planning After becoming the first major Australian retailer to commit to buying to reduce truck movements and move products into our stores renewable electricity through a power purchase agreement in 2019, quicker, so that they stay fresher for longer, and new self-service we made further progress towards our emissions goals in FY21, solutions at the checkout to give customers greater choice in how announcing four further renewable energy agreements with their bags are packed.

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Our values. Our behaviours.

renewable energy companies ENGIE, Neoen, Lal Lal Wind Farms and Our financial position CleanCo. In our second full year as an ASX-listed company in our own right, we We also became a founding member of the Australia, New Zealand have again delivered on our objective of providing shareholders with and Pacific Islands Plastics Pact, committing Coles to clear and sustainable earnings growth and attractive dividends, with annual actionable sustainable packaging targets by 2025 and helping to NPAT up 7.5%, excluding FY20 significant items, to $1,005 million, drive sustainability across the industry. enabling a 6.1% increase in fully franked dividends for the full year.

Despite the challenges of COVID-19, we recorded a significant Full year sales revenue increased by 3.1% to $38,562 million with improvement in team member safety, with a 15.7% reduction in our sales growth across all segments. Following our return to earnings total recordable injury frequency rate as we continued to invest in growth in FY20, we were pleased to again report an increase in Group technology to help our team work safely. EBIT with growth of 6.3% for FY21, driven by Smarter Selling benefits and operating leverage across all segments, despite incurring To help bolster our team’s resilience, we also invested in mental approximately $130 million of COVID-19 costs during the year. health and wellbeing including monthly ‘Mind your Health’ communications, and Gratitude, Empathy and Mindfulness Looking ahead challenges throughout the year. Having completed the second year of our strategy, we are now With Coles’ team members and customers representing the breadth increasing investment into the business, and our pace of change, to of the Australian community, I am particularly proud of the progress take advantage of the opportunities created by a rapidly changing we have made to support workplace diversity in FY21. Focusing on consumer environment, advances in technology and a strong the development of female leaders in store manager and technology balance sheet. Shareholders can expect to see increased roles helped us to record a 2.3 percentage point improvement in differentiation around Coles Own Brand, Ocado online and Witron women in leadership positions. We were also recognised for our efficiencies in the years ahead. leadership in LGBTQI+ inclusion with a Gold Australian Workplace Equality Index award. As we face into a third financial year in which COVID-19 will exert an influence on our business and the lives of all Australians, the safety of Coles recorded its highest ever engagement score in the 2021 our team and the communities we serve remains our highest priority. Advantage supplier survey as we continued to build our relationships with Australian suppliers. This included an increase in the number of I would like to thank our customers for the consideration, patience Australian beef farming families from which we buy cattle directly, to and respect they have shown to our team members, our Board for more than 1,000. We have also extended our Coles Own Brand direct their invaluable counsel, our leadership team for their tirelessly milk sourcing model to more than 100 farms across Australia, with innovative approach both to the operational challenges we face on a transparent farmgate contracts of up to three years to provide daily basis and the ongoing transformation of our 107-year-old farmers with greater confidence over their future income so they can business as we focus on ‘winning in our second century’, and all of invest in their businesses. our team members for their ongoing commitment to serving the community as essential workers.

Steven Cain Managing Director and Chief Executive Officer, Coles Group Limited

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Our vision, purpose and strategy

Our vision Become the most trusted retailer in Australia and grow long-term shareholder value.

Our purpose Sustainably feed all Australians to help them lead healthier, happier lives.

Win Together Smarter Selling with our team through efficiency members, suppliers and pace of change. and communities.

Inspire Customers through best value food and drink solutions to make lives easier.

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Coles Head of Energy, Jane, and Coles Category Manager – Energy, Sustainability & Store Services, Vinay at Lal Lal Wind Farms, . In March 2021, Coles announced a commitment to source 100% renewable electricity by the end of FY25. As part of this commitment, Coles signed an agreement with Lal Lal Wind Farms near Ballarat, for the purchase of large-scale generation certificates for renewable electricity until the end of 2030.

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Sustainability at Coles Overview With our vision to become the most trusted retailer in Australia and grow long- term shareholder value, and our purpose to sustainably feed all Australians to help them lead healthier, happier lives - sustainability is at our core. Operating and Financial Review Financial and Operating

Coles’ corporate strategy has three strategic pillars to enable us to The way forward deliver on our vision and purpose: Inspire Customers, Smarter Selling and Win Together. Our Win Together pillar has five key focus areas: Working towards our ambitions and targets under each of these Safer choices together, Great place to work, Together to zero to drive areas will enable us to take actions together now for generations generational sustainability, Better together through diversity and ahead. From our longstanding partnerships with SecondBite and stakeholder engagement, and Innovation through partnerships. REDcycle through to sustainability being a key focus area for our Coles Own Brand products – our sustainability journey is already Our ambition is to be Australia’s most sustainable supermarket and underway. in FY21, we launched our refreshed Sustainability Strategy which

focuses on Together to Zero and Better Together. We also unveiled We know that we are not working alone. Our relationships with our Report Directors’ Coles’ newest sustainability concept store in Moonee Ponds, Victoria, team members, shareholders, farmers, suppliers, partners, which has been designed to set a new standard in supermarket customers and the communities in which we live and work, drive our sustainability and help Coles create opportunities to reduce our sustainability agenda forward. environmental impact. We have identified powerful initiatives which mean we are not only Together to Zero committing to ambitious targets, but already progressing on the plans that sit behind them. Together to Zero sets out our ambitions across key sustainability Report Remuneration areas including climate change, waste and hunger. We are optimistic about the future. Our sustainability focus is not just guiding Coles in our second century, it is ensuring that future We will work together with our stakeholders to drive change in these generations will enjoy the same unique way of life and the fresh areas, with high expectations for ourselves and the broader Australian-sourced food that we do. community. Our long-term ambitions include: Our new sustainability icon Together to zero emissions Together to zero waste The new sustainability icon will become a key part of Coles’ visual Together to zero hunger identity. The original artwork, created for Coles by Bundjalung/ Biripi Report Financial artist Nikita Ridgeway of Boss Lady Design and Communication, has Better Together been designed to represent the importance of working together to protect and sustain life. We know that when we work together, we can create positive outcomes for our team members, farmers, suppliers, customers and The foundation highlights ‘Together’ as a circle which represents the communities in which we live and work. community in Aboriginal artwork. The dots, as used in the art of Northern Aboriginal Australian people, reflect the notion of Shareholder Information Better Together sets out our ambitions around how we will work with community with many different groups circling around a larger all our stakeholders to drive positive change focusing on: collective goal. The cross-hatching designs, as used in the art of A team that is better together Southern Aboriginal Australian people, represent the weaving A community that is better together technique used to create tools to hunt and gather food. And finally, Sourcing that is better together the colour palette used in the artwork is representative of the many Farming that is better together beautiful colours and textures of Australia.

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Coles Store Manager David provides food donations to Major Brendan Nottle from the Salvation Army as part of Coles’ partnership with national food rescue organisation, SecondBite.

Together to zero emissions

We understand our responsibility to minimise our environmental more sustainable and efficient. By working with industry partners, footprint and show leadership in protecting our planet and climate. suppliers and customers we aim to increase food security, reduce We are a significant energy user and producer of greenhouse gas waste and overall, conserve our valuable resources as we move emissions, both directly in our own operations and indirectly through towards a more circular economy. our extensive supply chains. In February 2021, we committed to no longer selling single-use We are committed to addressing the impacts of climate change and plastic tableware products including cups, plates, bowls, straws and reducing greenhouse gas emissions by responsibly accelerating the cutlery from 1 July 2021. decarbonisation of our operations and direct supply chains. In March, in partnership with technology developer Licella, recycler During FY21, we announced targets to reduce greenhouse gas iQRenew, polymer manufacturer LyondellBasell and Nestlé, we emissions, including: announced a joint feasibility study to determine the benefits of a local advanced recycling facility in Victoria. Advanced recycling turns • to deliver net zero greenhouse gas emissions by 2050; old soft plastic, such as flexible packaging used for confectionery, • for the entire Coles Group to be powered by 100% renewable bread bags, cereal liners, biscuit wrappers and flexible packaging electricity by the end of FY25, building on the progress already used to protect fresh produce, back into oil which can be used to made towards this target through renewable power purchase produce new soft plastic food packaging. agreements, onsite solar and agreements with renewable electricity generators; and We are working together with our supplier partners, government and industry to accelerate packaging sustainability and transition to a • to reduce combined Scope 1 and 2 greenhouse gas emissions by circular economy in Australia. We are aligned with Australia’s 2025 more than 75% by the end of FY30 (from a FY20 baseline). National Packaging Targets and during the year became a founding At the end of FY21, Coles already had five renewable electricity member of the ANZPAC Plastics Pact. agreements in place, which will enable us to purchase more than 70% of the renewable electricity required by FY25, once the Together to zero hunger agreements commence. Coles and food rescue organisation SecondBite have been working We are focused on reducing greenhouse gas emissions largely together since 2011 in the fight against hunger and food waste. Since through our energy efficiency and refrigeration management then, Coles has provided SecondBite with the equivalent of 151.1 programs. Further information is available on pages 43-50. million meals,* as well as funds raised with the support of our generous customers. The food we provide to SecondBite is Together to zero waste distributed to more than 1,300 community organisations who are Our customers want to see reduced waste and packaging, as well as helping Australians in need. increased efficiencies across our value chain, without compromising We have been working with Foodbank since 2003, providing the the safety and quality of the products we sell. equivalent of 34.1 million meals.* The food we provide Foodbank We recognise the role we can play in reducing food waste and supports approximately 2,600 agencies and community groups. packaging, reflecting customers’ needs while making our operations

* SecondBite uses the conversion of total kilograms donated multiplied by two to determine equivalent meals. Foodbank uses the conversion of total kilograms donated divided by 0.555 to determine equivalent meals.

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Coles team members in Queensland show their support for the LGBTQI+ community at ’s Big Gay Day. Review Financial and Operating

A team that is better together Directors’ Report Directors’ We are all different and, at Coles, we see that as a good thing. We Coles provided more than $10 million in cash contributions to know that our differences – our backgrounds, experiences and charities and community organisations in FY21. This included cash perspectives – not only set us apart, they can also bring us together. contributions from the sale of:

Our differences help us spark ideas, create connections and discover • reusable bags designed by Australian school children; commonality, helping us foster understanding, show empathy and • Coles Own Brand bread for Redkite; build communities. Being unique reminds us that every customer, team member and supplier we work with is unique too. We strive to • Mum’s Sause pasta and pizza sauce for Curing Homesickness, an Report Remuneration have a team that energises us to win together to achieve our goal of initiative supporting children’s hospital foundations and sustainably feeding all Australians. paediatric services across Australia; • Coles Bakery biscuits and cookies for Bravery Trust in the lead up We are making Coles somewhere everyone feels like they belong so to Anzac Day to support veterans facing financial hardship; and that we can all live healthier and happier lives. A team that is better together focuses on: • Coles Own Brand fresh pork for FightMND.

• All together for Belonging Coles’ customers, suppliers and team members contributed more

• All together for Gender equity than $18 million from activities such as in-store fundraising for Report Financial SecondBite, FightMND, children’s cancer charity Redkite, children’s • All together for Accessibility hospital foundations and Guide Dogs Australia. • All together for Pride Fundraising highlights for Coles Group in FY21 included: • All together for Indigenous engagement • a record $6.7 million raised for FightMND during our six-week During FY21, Coles’ leadership in LGBTQI+ was recognised as a Gold campaign through the sale of beanies in and Shareholder Information Employer at the 2021 Australian Workplace Equality LGBTQ Inclusion Coles Express outlets; Coles Own Brand fresh pork in Awards. supermarkets; as well as donations from customers and Coles’ Australian pork farmers; A community that is better together • our most successful Christmas fundraising appeal, with Better together includes supporting our communities through $3.2 million raised in our Coles supermarkets, Coles Liquor partnerships, sponsorships and fundraising. We can build stronger stores and Coles Express sites in the lead up to Christmas for communities by working together to make a positive difference and SecondBite, Redkite and the Salvation Army; and supporting each other in times of need. • a new record in our fundraising for the Curing Homesickness Together with our customers, suppliers and team members, Coles initiative, with $2.5 million raised from the sale of Mum’s Sause Group contributed $1431 million to the community in FY21. One of products, the sale of $2 donation cards and customer donations. the ways we support those who are disadvantaged is through our key national partnerships with food rescue organisations, We also reached a key fundraising milestone in FY21 by raising more SecondBite and Foodbank. than $40 million for Redkite since 2013, when our partnership began.

1 Includes Coles’ direct contribution of cash, time, in-kind donations and management costs as well as donations from customers and suppliers and team members (leverage). Coles references the Business for Societal Impact (formerly London Benchmarking Group) framework for reporting community contributions.

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At Coles, we recognise the importance of our sustainability responsibilities and that our ambitions can create momentum and activate change. We have a clear ambition to become Australia’s most sustainable supermarket. Our Sustainability Strategy focuses on those areas which are important to us and to our stakeholders and where we can have the most impact. It acknowledges that we are not working alone and that by acting together, we can leave a better place for future Australians.

The funds raised by Coles help Redkite to provide counselling Farming that is better together services, financial assistance, information resources, education and career support and grants to children with cancer and their families. We want to win together with our supplier partners and build strong, multigenerational, collaborative relationships with Australian To help Australians to lead healthier, happier lives, we supported farmers and producers. grassroots, community sport by extending our partnerships with Little Athletics Australia, Athletics Australia and Rowing Australia. In We remain committed to our Australian-first sourcing policy for fresh addition, we continued our partnership with the AFL and the Healthy produce in our supermarkets so we can provide our customers with Kicks program which encourages children to embrace healthy living, quality Australian-grown fruit and vegetables as a first priority. mindfulness and exercise. We aim to safeguard animal welfare by sourcing higher welfare meats Coles team members also demonstrated their commitment to and ingredients in Coles Own Brand products – providing the supporting the community in times of need, particularly in the face broadest range of RSPCA Approved products of any major Australian of natural disasters. supermarket.

In February, Coles supermarkets, Coles Liquor stores and Coles In May 2021, we expanded our direct-sourcing model for Coles Own Express sites in Western Australia supported bushfire-affected Brand fresh milk to Tasmania and began direct-sourcing fresh white residents in Wooroloo and the Hills by raising more than $330,000 for milk for the production of many varieties of Coles Own Brand cheese. the Lord Mayor’s Distress Relief Fund and donating essential Our direct-sourcing model allows Australian dairy farmers to secure supplies. transparent pricing for up to three years, enabling them to plan for the long term. In March, in response to floods in New South Wales and Queensland, our local store teams donated food and water to support the SES Coles has established the Coles Sustainable Dairy Development and emergency services working on the front-line. Group, which works with dairy farmers to invest in farm-related sustainability projects to improve productivity and animal welfare. With an up-front donation of $100,000 and matching of customer donations dollar-for-dollar, Coles and our customers contributed In April 2021, Coles welcomed 30 new Australian cattle farming more than $350,000 to provide emergency and household items to families as direct suppliers of our 100% No Added Hormone flood-affected residents via relief organisation GIVIT. Australian Coles Own Brand fresh beef, demonstrating our commitment to investing in the long-term sustainability of our beef In April, Coles provided support to cyclone-affected towns in the suppliers and in the Australian meat industry. mid-west of Western Australia by raising more than $153,000 to the Lord Mayor’s Distress Relief Fund and donating essential supplies As part of our major sponsorship of Rockhampton’s Beef Week, in and Coles care packages to evacuees and residents in Kalbarri and April we launched an update of our electronic National Vendor Geraldton. Declaration (eNVD) app, designed to help producers save time on traceability paperwork and assist with purchasing decisions. Sourcing that is better together During the year, we also continued to support the food and grocery We work with our suppliers and producers to make life easier for our sector by awarding more than $4 million in grants from the Coles customers by offering them quality, safe and trusted products which Nurture Fund to 16 small and medium-sized businesses which are are sourced in an ethical, transparent and responsible way. implementing plans to improve sustainability and produce more Australian food and beverages. We continue to strive to further safeguard human rights in our own operations and extended supply chains through deeper engagement with our stakeholders, analysis of our supply chains – including our higher risk regions, products and suppliers – and aligning and embedding our human rights strategy with our corporate objectives. For more information read the 2021 Sustainability Report which can be found at www.colesgroup.com.au

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Coles has continued to help Australians to lead healthier, happier lives through its partnerships with the AFL and Little Athletics. TOP: Richmond midfielder, Brownlow medallist and triple Norm Smith medallist Dustin Martin at the AFL Grand Final in Brisbane in 2020. Source: AFL Photos. BOTTOM: Young athletes from the Albury Little Athletics Centre take part in a dedicated Coles Community Round to celebrate Coles’ partnership.

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Governance at Coles

Coles’ robust corporate governance framework has been integral to our ability to adapt at pace and respond to the challenges of FY21, while continuing to deliver on our strategy.

Our corporate governance framework The Board The Board provides leadership and approves the strategic direction and objectives of the Group in the long-term interests of, People and and to maximise value to, shareholders. The Board and management Audit and Risk Nomination Culture Committee Committee Committee team are committed to maintaining and building on the confidence of our shareholders, our customers, our suppliers, our team Managing Director and Chief Executive Officer members and the broader community as we continue to strive to achieve our vision to become the most trusted retailer in Australia and to grow long-term shareholder value. Executive Leadership Team Coles’ 2021 Corporate Governance Statement contains a Coles Team Members comprehensive overview of our corporate governance framework and highlights and is available at www.colesgroup.com.au/ corporategovernance.

In FY21, our key corporate governance highlights and focus areas included:

Strategy • Focused upon creating trust with all stakeholders and delivering long-term shareholder value. 1 • Differentiated customer product offering supported by Exclusive to Coles ranging. • New format store renewal and development across our 2,500 outlets, enhanced by growing online infrastructure. • Investment in training, resourcing and safety of our more than 120,000 team members.

Board • Oversight of strategy and performance across all business units. 1 • Support for management in a period of unparalleled community challenges. • Strong focus upon values, reputation and stakeholder engagement. • Close monitoring of risk and operational exposures, including new project initiatives.

Sustainability • Launched Together to Zero and Better Together Sustainability Strategy. • Announced new combined Scope 1 and Scope 2 emissions reduction target. • Continued progress on our commitment to transition to renewable electricity. • Maintained a strong focus on ethical sourcing and commitment to supporting our suppliers.

Risk Management • Strengthened Group-wide risk management processes, including investment in risk technology. 1 • Embedded quality and behaviour overlays, including risk and compliance, in leadership performance measures. • Obtained external reviews in critical risk areas. • Continued to mature risk management governance for engagements with third-party goods not for resale providers.

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Board of Directors Overview Operating and Financial Review Financial and Operating

James Graham AM Steven Cain Chairman of the Board Managing Director and Chief Executive Officer Chairman of the Nomination Committee Report Directors’ and Member of the People and Culture Committee Remuneration Report Remuneration

David Cheesewright Jacqueline Chow Member of the Nomination Committee Member of the Nomination Committee and the People and Culture Committee and the Audit and Risk Committee Financial Report Financial

Abi Cleland Richard Freudenstein Member of the Nomination Committee Chairman of the People and Culture Committee and the People and Culture Committee and Member of the Nomination Committee Shareholder Information

Paul O’Malley Wendy Stops Chairman of the Audit and Risk Committee Member of the Nomination Committee and Member of the Nomination Committee and the Audit and Risk Committee

Biographical details of the Board of Directors can be found on pages 51–52.

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Board skills matrix

The Board recognises the importance of having directors who Board and will regularly review its mix of skills to make sure it covers possess a broad range of skills, background, expertise, diversity and the skills needed to address existing and emerging business and experience in order to facilitate constructive decision-making and governance issues relevant to the Company. facilitate good governance processes and procedures. The current mix of skills and experience represented on the Board is The Board, on the recommendation of the Nomination Committee, set out in the skills matrix below: determines the composition, size and structure requirements for the

Number of Directors Skill/experience with the requisite skill Corporate governance Experience serving on boards in diverse industries and for a range of organisations, including public-listed entities or other large, complex organisations. An awareness of global practices and trends. Experience in implementing high standards of governance in a large organisation and assessing the effectiveness of senior management. 8 Executive experience Effective senior leadership in a large, complex organisation or public-listed company. Successfully leading organisational transformation and delivering sustained business success, including through line management responsibilities. 8 Financial acumen Senior executive or other experience in financial accounting and reporting, internal financial and risk controls, corporate finance and/or restructuring, corporate transactions, including ability to probe the adequacies of financial and risk controls. 8 Strategic thinking Demonstrated ability to identify and critically assess strategic opportunities and threats and to develop and implement successful strategies to create sustained, resilient business outcomes. Ability to question and challenge on delivery against agreed strategic planning objectives. 8 People, culture and remuneration Experience overseeing or implementing a company’s culture and people management framework, including succession planning to develop talent, culture and identity. Board or senior executive experience in applying remuneration policy and framework, including linking remuneration to strategy and performance, and the legislative and contractual framework governing remuneration. 8 Risk management Understanding of and experience in identifying and monitoring key risks to an organisation and implementing appropriate risk management frameworks and procedures and controls. 8 Retail and FMCG skills and experience Senior management experience in the retail and fast-moving consumer goods (FMCG) industry, particularly in the food and liquor industry, including an in-depth knowledge of merchandising, product development, exporting, logistics and customer strategy. 6 Customer service delivery Advanced understanding of customer service delivery models, benchmarking and oversight. 8 Supply chains Senior executive experience in managing or overseeing the operation of supply chains and distribution models in large, complex entities, including retail suppliers. 7 Interstate / global business experience Senior manager or equivalent experience in national or international business, providing exposure to a range of interstate or international political, regulatory and business environments. 8 Property development and asset management Experience in property development and asset management. 5 Marketing Senior executive experience in consumer and brand marketing and in eCommerce and digital media, including in the retail industry. 6 Digital technology and innovation Expertise and experience in the adoption and implementation of new technology. Understanding of key factors relevant to digital disruption and innovation, including opportunities to leverage digital technologies and cyber security and understanding the use of data and analytics. 7 Sustainability, environment, health and safety Identification of key health and safety issues, including management of workplace safety, and mental and physical health. Experience in managing and driving environmental management and social responsibility initiatives, including in relation to sustainability and climate change. 7 Regulatory and public policy Senior management experience working in diverse political, cultural, regulatory and business environments. Experience in regulatory and competition policy and influencing public policy decisions and outcomes, particularly in relation to regulation relevant to food and liquor industries. 7

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Executive Leadership Team Overview Operating and Financial Review Financial and Operating

Steven Cain Leah Weckert Greg Davis Managing Director and Chief Executive Officer Chief Financial Officer Chief Executive Commercial & Express Directors’ Report Directors’

Matthew Swindells Darren Blackhurst David Brewster Chief Operations Officer Chief Executive Liquor Chief Legal & Safety Officer Remuneration Report Remuneration

Sally Fielke Ben Hassing Thinus Keevé General Manager Corporate Affairs Chief Executive eCommerce Chief Sustainability, Property & Export Officer Financial Report Financial Shareholder Information

Daniella Pereira Lisa Ronson George Saoud Company Secretary Chief Marketing Officer Chief Executive Emerging Businesses & Smarter Selling

Roger Sniezek Kris Webb Chief Information Officer Chief People Officer

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Operating and Financial Review Business model and strategy

The Operating and Financial Review relates to Coles Group Limited • Liquor: liquor retailer with 929 stores nationally under the brands (‘the Company’) and its controlled entities (together, ‘Coles’, ‘Coles Liquorland, First Choice Liquor Market and Vintage Cellars, Group’, or ‘the Group’). including online liquor delivery services; and

Coles is an omnichannel retailer selling products including fresh • Express: convenience store operator and commission agent for food, groceries and liquor through its supermarkets, liquor stores retail fuel sales across 717 sites nationally. and eCommerce platforms. Coles also sells convenience products Other business operations that are not separately reportable, such and, under its alliance with (Viva), is a commission agent as Property, as well as costs associated with enterprise functions, for retail fuel sales through the Coles Express network. We employ such as Insurance and Treasury, are included in Other. more than 120,000 team members, engage with more than 7,000 suppliers, have more than 450,000 direct shareholders and we In June 2019, Coles refreshed its strategy with a vision to become the welcome more than six million customers through our extensive most trusted retailer in Australia and grow long-term shareholder store network and eCommerce platforms every week. value. Achieving this requires us to deliver on our purpose, which is to sustainably feed all Australians to help them lead healthier, happier Coles is one of the most trusted consumer brands in Australia with lives. Our values of customer obsession, passion and pace, businesses including Coles, Coles Local, Coles Express, Liquorland, responsibility and health and happiness, guide the day-to-day First Choice Liquor Market, Vintage Cellars and Coles Financial decisions and actions of our team members. Services. Coles is also a 50% shareholder of , one of Australia’s most popular loyalty programs with more than six million active We have set ourselves the ambition to differentiate in five key areas: households. 1. Win in online food and drinks with an optimised store and Coles’ core competencies include merchandising, product supply chain network development and supplier relationships, marketing, customer 2. Be a great value Own Brand powerhouse and destination for service and maintaining and operating a national store and online health network. Coles also operates an integrated supply chain, including 3. Achieve long-term structural cost advantage through logistics, and a national distribution centre network. automation and technology partnerships The Group’s reportable segments are: 4. Create Australia’s most sustainable supermarket

• Supermarkets: fresh food, groceries and general merchandise 5. Deliver through team engagement and pace of execution retailer with a national network of 834 supermarkets, including We have made progress against our three strategic pillars of Inspire Coles Online and Coles Financial Services; Customers, Smarter Selling and Win Together while supporting our team members, customers, suppliers, and community partners.

Our brands

Supermarkets Liquor Convenience

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Inspire Customers

The focus areas of the first pillar of our strategy, ‘Inspire Customers health and beauty. This has brought, and will continue to bring, more Overview through best value food and drink solutions to make lives easier’, are innovation and more tailoring to customers both in store and online. outlined below: We continue to make progress on our trusted and targeted value strategy, consistently investing in our offer, including placing a net

• Customer obsessed 474 new products on everyday low prices during the year. and Review Financial Operating • Tailored offer with trusted and targeted value Coles Own Brand is a key strategic differentiator for Coles delivering • Own Brand powerhouse innovative products at great prices. From FY21, Coles is reporting its • Destination for convenience and health Coles Own Brand and Exclusive Proprietary Brand sales under the new banner ‘Exclusive to Coles’. Exclusive to Coles products • Leading anytime, anywhere, anyhow shopping generated $10.9 billion in sales and, in FY21, Coles Own Brand won 46 • Accelerate growth through new markets awards, demonstrating the breadth of our brand capability and quality of our products.

Update on Inspire Customers pillar: Our convenience offer in stores, assisted by the acquisition of the Jewel Fine Foods assets in May 2020, has an extended range with We have made progress against our strategic pillar of Inspire convenience destinations in more than 300 stores. Promoting Report Directors’ Customers by improving customer advocacy and delivering healthy eating has continued through our many partnerships innovative and differentiated products to our customers including the Heart Foundation and Stephanie Alexander’s Kitchen With a customer-obsessed lens, we continued to make progress in Garden Foundation. building trust and loyalty with Australians. Underpinning this progress Coles continued to invest in our anytime, anywhere, anyhow was the launch of our new brand positioning ‘Value the Australian Way’ (eCommerce) offer with enhancements made to the user experience which reinforces Coles’ heritage and role in the Australian community. such as a single-click check out and improved navigation. Remuneration Report Remuneration At Coles, we measure customer advocacy through the Net Promoter Investments have been made in capacity including the roll out of Score (NPS). We are pleased that our Supermarkets NPS increased by more than 500 contactless Click & Collect (to the boot of car) 2.3 points and Liquor NPS increased by 4.9 points in FY21. Coles also locations. Two eCommerce offers were added during the year - our significantly increased its trust perception with the Roy Morgan membership subscription offer Coles Plus, and Click & Collect Rapid, survey recognising Coles as one of the most trusted consumer our 90-minute order to pick up service. Both have resonated well brands in Australia. with customers and we have seen improvements in the Perfect Order Rate and Online NPS almost doubled compared to the prior In FY21, Coles implemented new technology, improved forecasting year. In addition, investments have been made to support strong Liquor eCommerce growth with the opening of three online fulfilment

and leveraged advanced analytics to enable a tailored offer to meet Report Financial the differing needs of our customers. To date we have tailored 30% of centres to increase capacity, streamline order fulfilment and improve our store layouts which was complemented by more than 650 range speed of delivery for customers. changes during the year in categories such as impulse, homecare and Shareholder Information

Coles ambassador and chef Curtis Stone helped inspire customers to cook more at home during COVID-19 restrictions through marketing communications in FY21.

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Smarter Selling

The focus areas of the second pillar of our strategy ‘Smarter Selling Driving sustainable efficiencies through technology is at the core of through efficiency and pace of change’, are outlined below: our Smarter Selling strategy. In store, we are digitising and automating processes to deliver improved team and customer experiences, such as our smarter forecasting tool which uses • Technology-led stores & supply chain machine learning to enhance existing supply chain algorithms and • Strategic sourcing increase availability for customers. Profit protection measures have • Optimised network and formats been implemented including dynamic markdowns, which uses artificial intelligence to optimise markdowns in meat, and loss • Efficient and agile Store Support Centre prevention measures such as electronic entry gates in store.

The use of technology also extends from the stores into our supply Update on Smarter Selling pillar: chain where we continue to drive an enhanced service. We are We have made progress against our strategic pillar of Smarter generating benefits from the end-to-end optimisation of the supply Selling through our commitment to establishing a structural cost chain between stores, distribution centres and suppliers and we advantage by increasing efficiency through rapid innovation and have also digitised processes such as paperless operations, execution at pace. Technology and digital investment supporting removing manual processes for inbound and outbound deliveries efficiency and automation in our supply chain, stores and Store into our distribution centres. Support Centre is critical, as is the continued optimisation of our Coles’ strategic and exclusive partnership with Witron to deliver two network and store formats, and our supplier network. automated distribution centres in Queensland and New South Wales Since the launch of the Smarter Selling program in FY19, in excess of by FY23 is expected to provide best-in-class automated fulfilment $550 million of Smarter Selling benefits have been delivered and we which importantly aims to improve safety for our team members by are on track to deliver $1 billion of benefits by the end of FY23. With reducing manual handling, while tailoring pallets to our stores. the savings being generated, the business has been able to partially Our optimised network and formats delivered operational offset underlying inflation and invest in enhanced customer service, efficiencies during the year with approximately 10% of our both online and in store, accelerate our eCommerce plans, invest supermarket store network being updated or opened in a new further in technology, including digital catalogues and the launch of format, whether that be our Format A stores, a full line supermarket coles&co to deliver more engagement with the ease, convenience with all of our latest innovations and concepts, many of which are and integration of recipes and weekly specials as key benefits for our deployed into Format B stores that have a mainstream offer, Format customers. C stores which are focused on driving operational efficiencies or a Coles Local, an innovative convenience-focused smaller footprint supermarket.

Coles Online team member Neranda provides groceries to customer Wendy as part of Coles’ Click & Collect service.

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Win Together

The focus areas of the third and final pillar of our strategy ‘Win Together sustainability areas of emissions, waste and hunger. We have signed Overview with our team members, suppliers and communities’, are outlined below: five renewable energy contracts to progress our 100% renewable electricity target including power purchase agreements, large scale generation certificate agreements, and the installation of on-site • Safer choices together solar. 2021 marked the tenth year of Coles’ partnership with REDcycle, Operating and Review Financial Operating • Great place to work providing customers with an option to recycle soft plastics. The • Together to Zero to drive generational sustainability millions of pieces of soft plastic returned to our supermarkets have been put to good use including in sanitiser stations used in some of • Better Together through diversity and stakeholder our supermarkets, playground equipment, fence posts and even in engagement Coles supermarket carparks. Furthermore, through our partnerships • Innovation through partnerships with SecondBite and Foodbank, we are helping Australians in need by donating edible, unsold food from our supermarkets and distribution centres to feed vulnerable people in our community. Update on Win Together pillar: Better Together recognises that when we work together, we can make We have made progress against our strategic pillar of Win a real difference to our team members, our suppliers, our customers

Together focusing on helping all Australians to lead healthier Report Directors’ and to the communities in which we live and work. Our team is Better and happier lives, including our team members, our suppliers Together through diversity and we are proud that Coles has increased and our communities. its gender balance with a 2.3 percentage point increase in women in Improvements in safety were demonstrated over the last year, with a leadership positions, has continued to develop our Indigenous 15.7% improvement in Total Recordable Injury Frequency Rate engagement programs and was recognised as a leader in LGBTQI+ (TRIFR). We continued to implement safety programs across Coles inclusion, winning a Gold Australian Workplace Equality Index award including rolling out safety leadership and training, implementing in May 2021. We believe we can build stronger communities when we Remuneration Report Remuneration processes and investments to keep customers and team members work together to make a positive difference and support each other in safe, especially during COVID-19, while continuing to focus on the times of need, demonstrated by our local community initiatives and mental health and wellbeing of our team members. our national partnerships. We are committed to working with our suppliers to make life easier for our customers by offering them We strive to build a Great place to work at Coles, one which provides quality, safe and trusted products which are sourced in an ethical, opportunities for team members to grow their career in a company transparent and responsible way. We remain committed to our that is purpose-led and values-driven. Australian first sourcing policy for fresh produce in our supermarkets so we can provide our customers with quality Australian grown fruit Our sustainability strategy focuses on ‘Together to Zero’ and ‘Better

and vegetables. Report Financial Together’. Together to Zero sets our ambitions across the key Shareholder Information

Coles and Redkite provided gift cards to nearly 2000 families affected by childhood cancer, including Western Australian mother Brooke and her daughters.

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Group performance

$M FY21 FY20 CHANGE Sales revenue Supermarkets 33,845 32,993 2.6% Liquor 3,525 3,308 6.6% Express 1,192 1,107 7.7% Group sales revenue 38,562 37,408 3.1% EBIT Supermarkets 1,702 1,618 5.2% Liquor 165 138 19.6% Express 67 33 103.0% Other (61) (27) (125.9%) Group EBIT 1,873 1,762 6.3% Financing costs (427) (443) 3.6% Income tax expense (441) (341) (29.3%) Profit after tax 1,005 978 2.8%

Highlights EBIT for the Group increased 6.3% to $1,873 million primarily due to improved trading performance and cost management initiatives, partly • Group sales revenue growth of 3.1% to $38.6 billion offset by lower fuel commission income and higher administration • Group EBIT growth of 6.3% expenses (inclusive of costs associated with COVID-19). • Robust balance sheet with investment-grade credit metrics Impacts of COVID-19 • Cash realisation of 106% and net debt of $355 million Over the course of FY21’s COVID-19 pandemic, Coles has supported • The Board has determined a fully franked final dividend of team members, partnered with suppliers and engaged with the 28.0 cents per share community to emerge stronger.

Performance overview Supermarkets

The financial and operating performance of the Group is presented Coles continued to experience elevated sales as a result of COVID-19 on a statutory (IFRS) basis. Operating metrics prepared on a non- which led to greater in-home consumption with more people IFRS basis have also been included to support an understanding of working and studying from home. Throughout the year, customers comparable business performance. Further details relating to the increasingly adopted online platforms to do their weekly shop, via presentation of non-IFRS information is provided in the Non-IFRS home delivery or contactless Click & Collect, which saw strong Information section. growth rates in eCommerce. Customers also showed a preference for local shopping leading to neighbourhood stores performing Sales revenue for the Group increased 3.1% to $38,562 million driven strongly while shopping centre and CBD stores remained subdued, a by sales growth across all segments. Supermarkets sales growth was trend known as ‘local shopping’. Towards the end of the financial driven by successful value campaigns and growth in eCommerce. year, notwithstanding lockdowns in Victoria, in Darwin and parts of Liquor revenue grew across all banners, categories and states, Sydney, consumer behaviour in the fourth quarter started to supported by a strong performance in eCommerce. Express sales normalise with customers returning to shopping centres and CBD growth was driven by food-to-go, confectionery and drinks, stores, workers returning to offices and indicators that ‘local supported by recent investments in new self-serve coffee machines shopping’ effects were beginning to unwind. Increased shopping and fast-lane fridges. Both Supermarkets and Liquor experienced a trips and improved transaction growth supported a recovery in trading uplift from increased demand for in-home consumption impulse, convenience and food-to-go categories and Sunday associated with the COVID-19 pandemic. returned to being the busiest trading day of the week supported by normalised routines of going to the office and children going back to school.

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Liquor energy transition scenarios. Forward-looking statements can generally be identified by the use of words such as ‘forecast’, Liquor sales remained elevated during the year despite the relaxation ‘estimate’, ‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’, of restrictions for on-premise consumption, with a continued trend ‘intend’, ‘outlook’, ‘guidance’ and other similar expressions. towards eCommerce sales, larger pack sizes and customer preference for large format stores. Any forward-looking statements are based on the Group’s good- faith assumptions as to the financial, market, risk, regulatory and Express other relevant environments that will exist and affect the Group’s Stay-at-home directives in FY21 impacted fuel volumes, most business and operations in the future. The Group does not give any notably in Victoria where restrictions were more prolonged. Fuel assurance that the assumptions will prove to be correct. The Overview volumes began to recover during the reporting period as restrictions forward-looking statements involve known and unknown risks, eased. Convenience store (C-Store) sales remained strong with uncertainties and assumptions and other important factors, many of customers continuing to shop locally and use convenience stores for which are beyond the reasonable control of the Group, that could cause the actual results, performances or achievements of the

top-up shopping. and Review Financial Operating Group to be materially different from the relevant statements. There Award covered salaried team member review are also limitations with respect to scenario analysis, and it is difficult to predict which, if any, of the scenarios might eventuate. Scenario In February 2020, Coles announced it was conducting a review into analysis is not an indication of probable outcomes and relies on the pay arrangements for team members who receive a salary and assumptions that may or may not prove to be correct or eventuate. are covered by the General Retail Industry Award 2010 (GRIA). As announced in February 2020, Coles recognised a provision of $20 Readers are cautioned not to place undue reliance on forward- million in its 2020 Half Year Financial Report in relation to expected looking statements, which speak only as at the date of issue. Except remediation costs. as required by applicable laws or regulations, the Group does not undertake any obligation to publicly update or revise any of the Coles has been supported by a dedicated team of external experts in forward-looking statements or to advise of any change in

this review. Remediation to affected current and former team Report Directors’ assumptions on which any such statement is based. Past members commenced in June 2020. performance cannot be relied on as a guide to future performance.

Following the announcement in February 2020, the Fair Work Earnings per share and dividends Ombudsman (FWO) commenced an investigation which is ongoing. The potential outcomes of this investigation are uncertain as at the Earnings per share (EPS) increased to 75.3 cents, a 2.7% increase date of this report. from the prior year.

In May 2020, Coles was notified that a class action proceeding had Report Remuneration FY21 FY20 been filed in the Federal Court of Australia in relation to payment of Profit for the period ($M) 1,005 978 Coles managers employed in supermarkets. Coles is defending the Weighted average number of proceeding. The potential outcome and total costs associated with ordinary shares for basic EPS this matter remain uncertain as at the date of this report. (shares, million) 1,334 1,334 Non-IFRS information Weighted average number of ordinary shares for diluted EPS This report contains IFRS and non-IFRS financial information. IFRS (shares, million) 1,335 1,334 financial information is financial information that is presented in Report Financial Basic and diluted EPS (cents) 75.3 73.3 accordance with all relevant accounting standards. Non-IFRS Basic and diluted EPS, excluding financial information is financial information that is not defined or significant items (cents) 75.3 70.1 specified under any relevant accounting standards and may not be directly comparable with other companies’ information. The Board has determined a fully franked final dividend of 28.0 cents per share (cps). Any non-IFRS financial information included in this report has been labelled to differentiate it from statutory or IFRS financial information. Shareholder Information FRANKED AMOUNT Non-IFRS measures are used by management to assess and monitor CPS PER SECURITY business performance at the Group and segment level and should be FY21 considered in addition to, and not as a substitute for, IFRS information. Non-IFRS information is not subject to audit or review. Interim dividend 33.0 cents 33.0 cents Final dividend 28.0 cents 28.0 cents Forward-looking statements FY20 Interim dividend 30.0 cents 30.0 cents This report contains forward-looking statements in relation to the Final dividend 27.5 cents 27.5 cents Group, including statements regarding the Group’s intent, belief, goals, objectives, initiatives, commitments or current expectations with respect to the Group’s business and operations, market conditions, results of operations and financial conditions, and risk management practices. This release also includes forward-looking statements regarding climate change and other environmental and

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Balance sheet

A summary of key balance sheet accounts for the Group:

$M FY21 FY20 CHANGE Assets Cash and cash equivalents 787 992 (20.7%) Trade and other receivables 368 434 (15.2%) Inventories 2,107 2,166 (2.7%) Property, plant and equipment 4,463 4,127 8.1% Right-of-use assets 7,288 7,660 (4.9%) Intangible assets 1,698 1,597 6.3% Deferred tax assets 873 849 2.8% Other 539 524 2.9% Total assets 18,123 18,349 (1.2%) Liabilities Trade and other payables 3,660 3,737 (2.1%) Provisions 1,408 1,333 5.6% Interest-bearing liabilities 1,142 1,354 (15.7%) Lease liabilities 8,756 9,083 (3.6%) Other 344 227 51.5% Total liabilities 15,310 15,734 (2.7%) Net assets 2,813 2,615 7.6%

Cash and cash equivalents decreased to $787 million largely due to Capital management the repayment of bank debt, partly offset by an issuance of $450 million of medium term notes (Notes). Interest-bearing liabilities reflect external borrowings and debt capital funding commitments. During the year, Coles issued $450 Trade and other receivables decreased to $368 million largely driven million of Notes, comprising $300 million of 10-year fixed rate Notes by the settlement of a one-off loan. and $150 million of five-year floating rate Notes. The 10-year fixed rate Notes are priced at a coupon of 2.1% and the five-year floating Right-of-use assets decreased to $7,288 million largely driven by rate Notes are priced at a margin of 0.97% over 3-month BBSW. depreciation for the period, partly offset by new leases and Proceeds from the Notes were used to repay bank debt. remeasurements. As at 27 June 2021, Coles’ average debt maturity was 6.9 years, with Property, plant and equipment increased to $4,463 million undrawn facilities of $2,406 million. Coles is committed to diversifying reflecting investment in the Group’s annual capital program, partly funding sources and extending its debt maturity profile over time. offset by depreciation and property transactions during the year. The lease-adjusted leverage ratio at the reporting date was 2.8x with Intangible assets increased to $1,698 million largely driven by the current published credit ratings of BBB+ with Standard & Poor’s and Group’s investment in technology, partly offset by amortisation Baa1 with Moody’s. during the period.

Provisions increased to $1,408 million largely due to an increase in employee entitlements due to fewer team members taking leave due to COVID-19 and an increase in workers compensation claims provision based on claims experience.

Lease liabilities decreased to $8,756 million largely driven by lease payments for the period, partly offset by new leases and remeasurements.

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Cash flow

Summary cash flows of the Group Overview $M FY21 FY20 CHANGE Cash flows from operating activities Receipts from customers 42,124 39,971 5.4%

Payments to suppliers and employees (38,496) (36,486) 5.5% and Review Financial Operating Interest paid (47) (37) 27.0% Interest component of lease payments (390) (399) (2.3%) Interest received 4 7 (42.9%) Income tax paid (358) (504) (29.0%) Net cash flows from operating activities 2,837 2,552 11.2% Net cash flows used in investing activities (1,106) (658) 68.1% Net cash flows used in financing activities (1,936) (1,842) 5.1% Net increase/(decrease) in cash and cash equivalents (205) 52 n/m1

1 n/m denotes not meaningful. Directors’ Report Directors’

Net cash flows from operating activities increased to $2,837 million Net cash flows used in investing activities increased to $1,106 reflecting increased EBITDA across all segments, in addition to a million reflecting investment in the Group’s annual capital program, decrease in income tax paid attributable to a revised PAYG instalment partly offset by the proceeds from property sales during the year. rate reflecting Coles’ position as a standalone taxpayer. Net cash flows used in financing activities increased to $1,936 million reflecting proceeds from the issuance of $450 million Notes offset by repayment of bank debt. Report Remuneration Financial Report Financial Shareholder Information

Coles’ Asian destination range has been rolled out to more stores as part of our tailored range strategy.

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Supermarkets

Segment overview

$M FY21 FY20 CHANGE Sales revenue 33,845 32,993 2.6% EBITDA 3,001 2,867 4.7% EBIT 1,702 1,618 5.2% Gross margin (%) 25.9 25.5 35bps Cost of doing business (CODB) (%) (20.8) (20.6) (22bps) EBIT margin (%)1 5.0 4.9 13bps

Operating metrics (non-IFRS) FY21 2H21 1H21 FY20 (52 WEEKS) (25 WEEKS) (27 WEEKS) (52 WEEKS) Comparable sales growth (%) 2.5 (2.2) 7.2 5.9 Customer satisfaction2 (%) 89.7 89.6 89.8 87.1 Inflation excl. tobacco and fresh (%) (0.8) (2.2) 0.7 1.5 Sales per square metre3 (MAT $/sqm) 17,847 17,847 18,101 17,547

1 Changes are calculated on an absolute percentage basis to more precisely reflect the movement. 2 Based on Tell Coles data. See glossary for explanation of Tell Coles. 3 Sales per square metre is on a moving annual total (MAT), calculated on a rolling 52-week basis.

Doors on upright refrigeration cases help to reduce energy consumption.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM Coles Group Limited 2021 Annual Report Overview Operating and Review Financial Operating

June Groves from Gatton became one of the longest-serving current Coles team members in Australia in May, when she celebrated 55 years working at Coles. June is pictured here (second from left) with Coles State General Manager Jerry, Regional Manager Tracey and Store Manager Kelsee.

Highlights

Sales revenue for Supermarkets increased 2.6% to $33,845 million Gross margin increased by 35bps to 25.9% driven by strategic Report Directors’ driven by successful value campaigns throughout the year including sourcing as well as Smarter Selling benefits such as loss prevention ‘Helping lower the cost of breakfast, lunch, dinner and entertaining’, initiatives. These were partly offset by COVID-19 costs as well as successful execution across the MasterChef cookware and knives additional business continuity costs as a result of the industrial campaigns and growth in eCommerce. Increased in-home action at the Smeaton Grange distribution centre. consumption as a result of COVID-19 positively impacted sales CODB as a percentage of sales increased by 22bps to 20.8% largely due revenue growth throughout the year. Normalising consumer to strategic investments in marketing, including coles&co, technology

behaviours in the fourth quarter supported a growth in transactions Report Remuneration initiatives and operating expenditure to support the capital as customers increased their shopping trips. expenditure program. These costs were partly offset by Smarter Exclusive to Coles products delivered $10.9 billion in sales during the Selling benefits, and lower COVID-19 costs compared to the prior year. year, an increase of 5.3%. Coles continues to deliver new Coles Own EBIT for the year increased by 5.2% to $1,702 million and EBIT margin Brand product innovations and brands, with over 2,100 new products improved by 13bps to 5.0%. launched during the year. With a focus on being a ‘destination for convenience and health’, key launches were in the Coles Kitchen Coles Online salad kit range and Coles PerForm nutritional meal solutions. During the year, Coles Own Brand won 46 awards including a record 11 eCommerce sales grew 52% to $2.0 billion in FY21 as more consumers Report Financial Product of the Year awards across products such as Coles Finest shifted towards purchasing online, in part as a result of COVID-19 Chocolate and Hazelnut Mousse, Coles Urban Coffee Culture dark lockdowns. A number of improvements were made in the end-to- roasted beans, Daley St medium/dark coffee capsules, KOi Jasmine end online customer experience during the year including in the and Sandalwood Handwash and LPO gel cleanser. areas of digital experience, platform stability, expanded range and availability, delivery in full and on-time and improved customer Supermarkets recorded deflation excluding tobacco and fresh of support. As a result, Online NPS almost doubled compared to the Shareholder Information 0.8% for the year and 3.7% for the fourth quarter. Total Supermarkets prior year. Coles Online also invested in its network adding 249 price inflation of 0.8% was recorded for the year and deflation of delivery stores and upgraded more than 100 Click & Collect locations. 1.1% was recorded in the fourth quarter. Deflation in the fourth A number of new services were added in the year including same day quarter was driven by the grocery, dairy, frozen and convenience home delivery, Click & Collect Rapid (order to pickup in 90 minutes), categories due to the cycling of lower promotional activity in the and Coles Plus membership subscription offer. Monthly active prior corresponding period to support improved availability during shoppers increased 46% and customer retention improved COVID-19 pantry stocking. This was partly offset by inflation in fresh, compared to the prior year. particularly in red meat from continued elevated livestock prices. Coles Financial Services Coles completed 65 renewals during the year including 10 Format A, 36 Format C and four Coles Local stores. Coles now has 41 Format A, Through Coles Financial Services, the Group offers credit cards and 69 Format C and nine Coles Local stores across the network with four personal loans in partnership with Citigroup to approximately Coles Local stores in Sydney, four in Melbourne and one in Brisbane. 330,000 customer accounts and home, motor vehicle and landlord For the year, 20 new openings and 10 closures were completed. At insurance in partnership with Insurance Australia Group (IAG) to the end of the period there were 834 Supermarkets. approximately 350,000 policy holders. Coles also offers pet insurance in partnership with Guild Insurance.

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ABOVE: Customer Zsofia selects from our gin range at the First Choice Liquor Market in Bentley, Western Australia; BELOW: Store Manager Ben and Coles Group Chief Executive Liquor Darren at the Liquorland store in Moonee Ponds.

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Liquor

Segment overview Overview

$M FY21 FY20 CHANGE Sales revenue 3,525 3,308 6.6%

EBITDA 276 242 14.0% and Review Financial Operating EBIT 165 138 19.6% Gross margin (%) 21.8 21.6 23bps Cost of doing business (CODB) (%) (17.1) (17.4) 26bps EBIT margin (%)1 4.7 4.2 49bps

Operating metrics (non-IFRS)

FY21 2H21 1H21 FY20 (52 WEEKS) (25 WEEKS) (27 WEEKS) (52 WEEKS) Comparable sales growth (%) 6.3 (2.9) 15.1 7.3

Sales per square metre2 (MAT $/sqm) 16,287 16,287 16,603 15,438 Report Directors’

1 Changes are calculated on an absolute percentage basis to more precisely reflect the movement. 2 Sales per square metre is a moving annual total (MAT), calculated on a rolling 52-week basis.

Highlights Report Remuneration

Sales revenue for Liquor increased 6.6% to $3,525 million driven by Gross margin increased by 23bps to 21.8% largely due to strategic sales growth across all banners, categories and states, underpinned sourcing benefits from improved relationships with suppliers. by a strong performance in eCommerce while spirits and ready-to- CODB as a percentage of sales improved by 26bps to 17.1% largely drink (RTDs) were the key drivers of growth at the category level. driven by cost control initiatives and volume growth from higher Targeted investments in capacity, order fulfilment, range and sales fractionalising Liquor’s fixed cost base, partly offset by strategic customer experience during the year supported eCommerce sales investments in service. growth of 79%. Liquor EBIT increased by 19.6% for the year to $165 million and EBIT Report Financial Optimisation of the Liquor store network continued during the year margin increased by 49bps to 4.7%. with 31 new stores opened and 12 stores closed, taking the total network to 929 Liquor sites. Liquor continues to maintain a focus on underperforming stores whilst developing a pipeline for future growth. Shareholder Information

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Express

Segment overview

$M FY21 FY20 CHANGE Sales revenue 1,192 1,107 7.7% EBITDA 207 167 24.0% EBIT 67 33 103.0% Gross margin (%) 52.4 53.7 (134bps) Cost of doing business (CODB) (%) (46.7) (50.8) 404bps EBIT margin (%)1 5.7 3.0 270bps

Operating metrics (non-IFRS)

FY21 2H21 1H21 (52 WEEKS) (25 WEEKS) (27 WEEKS) Comparable convenience store (c-store) sales growth (%) 6.8 3.6 9.9 Weekly fuel volumes (million litres) 57.1 58.9 55.5 Fuel volume growth (%) (4.0) 8.7 (13.8) Comparable fuel volume growth (%) (5.4) 6.8 (14.9)

1 Changes are calculated on an absolute number / percentage basis to more precisely reflect the movement.

Highlights traffic flows. Average weekly fuel volumes of 57.1mL per week were recorded during the year. For the fourth quarter, average weekly fuel Sales revenue for Express increased by 7.7% to $1,192 million largely volumes were 59.0mL per week, broadly flat quarter-on-quarter with driven by food-to-go, confectionery and drinks, supported by recent volume growth late in the quarter impacted by lockdowns. investments in new self-serve coffee machines and fast-lane fridges, as well as benefits from the range review implemented in the drinks Gross margin decreased by 134bps to 52.4% largely due to declining category. Forecourt and tobacco sales also contributed to growth for fuel volumes and lower fuel margin income, partly offset by strategic the year. sourcing benefits. CODB as a percentage of sales improved by 404bps to 46.7% largely due to strong focus on cost control During the year, 13 new sites were opened and nine closed, taking throughout the year and higher sales fractionalising Express’ fixed the total Express network to 717 sites. cost base.

Fuel volumes declined by 4.0% during the year with comparable fuel Strong c-store sales and cost control supported an increase in Express volumes declining by 5.4% driven by COVID-19 restrictions impacting EBIT to $67 million with EBIT margin increasing by 270bps to 5.7%.

Other Other includes corporate costs, Coles’ 50% share of flybuys net result, the net gain generated by the Group’s property portfolio and self-insurance provisions. Coles’ 50% share of flybuys’ net result was a loss of $5 million in FY21 (FY20: $6 million loss). In aggregate, this resulted in a $61 million net cost for the year (FY20: $27 million net cost). The increase from FY20 was driven by a market-wide increase in insurance costs, and lower property divestment income.

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Glossary of terms

Average basket size: A measure of how much each customer spends MAT: Moving Annual Total. Sales per square metre is calculated as on average per transaction sales divided by net selling area. Both sales and net selling area are based on a MAT, calculated on a rolling 52-week basis : Basis points. One basis point is equivalent to 0.01% Net Promoter Score: Metric used to measure customer advocacy, Cash realisation: Calculated as operating cash flow excluding derived from an externally facilitated survey with a nationally interest and tax, divided by EBITDA (excluding significant items) representative sample

CODB: Costs of doing business. These are expenses which relate to Perfect Order Rate: The percentage of total Home Delivery orders Overview the operation of the business below gross profit and above EBIT (excluding Click & Collect) that were fulfilled on time without any missing items or substitutions Comparable sales: A measure which excludes stores that have been opened or closed in the last 12 months and excludes demonstrable Retail calendar: A reporting calendar based on a defined number of Operating and Review Financial Operating impact on existing stores from store disruption as a result of store weeks, with the annual reporting period ending on the last Sunday in refurbishment or new store openings June

EBIT: Earnings before interest and tax Significant items: Large gains, losses, income, expenditure or events that are not in the ordinary course of business. They typically arise EBITDA: Earnings before interest, tax, depreciation and amortisation from events that are not considered part of the core operations of EPS: Earnings per share the business

Exclusive to Coles: Refers to the portfolio of product brands that are Tell Coles: A post-shop customer satisfaction survey completed by exclusively available at Coles, and includes Coles Own Brand and over two million customers annually, through which Coles monitors Exclusive Proprietary Brand products. Coles Own Brand refers to the customer satisfaction with service, product availability, quality and

portfolio of product brands owned by Coles (e.g. Coles Finest, KOi, price Report Directors’ Coles Nature’s Kitchen). Exclusive Proprietary Brands refers to the TRIFR: Total Recordable Injury Frequency Rate. The number of lost portfolio of product brands owned by suppliers but exclusive to time injuries, medically treated injuries and restricted duties injuries Coles (e.g. La Espanola) per million hours worked, calculated on a rolling 12-month basis. Gross margin: The residual income remaining after deducting cost of TRIFR includes all injury types including musculoskeletal injuries goods sold, total loss and logistics from sales, divided by sales Women in leadership: Comprises team members pay grade eight revenue (being middle managers and specialist roles) and above, and Report Remuneration IFRS: International Financial Reporting Standards Supermarket store managers

Leverage ratio: Gross debt less cash at bank and on deposit, divided by EBITDA Financial Report Financial Shareholder Information

The Coles Express team in Alexandria, New South Wales, band together to support the Movember Foundation. Coles customers and team members across Australia raised more than $580,000 for Movember to support mental health and cancer care.

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Looking to the future

Coles has made significant strategic and financial progress since our ‘Winning in our Second Century’ strategy was announced two years ago. We are operating in a market with significant opportunities being created by rapidly changing consumer needs and technology and we believe we are well positioned to take advantage of these opportunities.

To further drive long term sales, efficiencies, trust and shareholder to be powered by 100% renewable electricity by the end of FY25 for value, we are increasing our investment in data, eCommerce, the entire Coles Group; and to reduce combined Scope 1 and 2 technology, and automation to deliver an omnichannel tailored and greenhouse gas emissions by more than 75% by the end of FY30 unique range. We will also invest in the acceleration of our Coles (from a FY20 baseline). Together to zero waste details our ambitions Local and Liquorland renewal and new store program focused on around waste reduction and recycling. We are committed to diverting high quality locations and winning formats, and sustainability 85% of waste from landfill by FY25 with a continued focus on food initiatives – building on Together to Zero and Better Together. As a waste. As part of our Together to zero hunger ambition, we will result, we expect capital expenditure of up to $1.4 billion in FY22. continue to work with our charity food partners SecondBite and Foodbank to donate edible, unsold food from our supermarkets and To Inspire Customers, we will strive to increase trust in Coles distribution centres to feed those Australians most in need. delivering great value food and drink solutions for breakfast, lunch and dinner. We will continue to invest in range across key growth We have made progress on being a Great place to work and we want categories, grow the role of everyday low prices and use machine to be recognised as an Employer of Choice within Australia. As such, learning and advanced analytics to optimise our promotional mix. we will continue to build team member engagement by focusing on Critical to lowering the cost of shopping for our customers is our learning and career development, feedback and recognition. In Exclusive to Coles range of products and we will continue to deliver providing a safe environment for our team members, our focus will great value through these products across all price tiers. To meet the be on the use of technology to drive improved safety outcomes, needs of our customers who shop online, further enhancements will ongoing mental health investments and fostering an environment be made to the digital experience to enable Coles’ omnichannel where all team members own safety decisions and work together to strategy, including unifying our eCommerce and digital channels into improve safety outcomes. one Coles App. In addition, we are continuing to build our two automated online customer fulfilment centres in Melbourne and We will be A team that is better together by celebrating our Sydney, in partnership with Ocado, that will deliver a differentiated commitments towards gender equity, accessibility, pride and online experience with extended ranges and improved metrics such Indigenous engagement. A new commitment around belonging has as delivered in full and on-time. been introduced which recognises that our different backgrounds, experiences and perspectives are what makes us unique and helps Since commencement in FY19, Coles continues to target $1 billion of us create ideas, connections and brings us together as a team. Smarter Selling benefits by the end of FY23. This will be achieved by Looking ahead, we aim to achieve 40% of women in leadership roles leveraging technology to drive efficiencies in our supply chain, such and achieve pay parity, and provide more opportunities for as paperless operations in our distribution centres while Indigenous peoples, suppliers and communities. construction continues, in partnership with Witron, on our two automated distribution centres in Queensland and New South We will continue to foster key community partnerships, feed Wales. This will deliver a step change improvement in cost per carton Australians in need and support healthy lifestyles. We will continue through the network, support store range tailoring and improve to work with our stakeholders throughout our supply chain including safety for our team members. We will also use technology in stores farmers, food manufacturers, unions, transport providers and such as self-serve options for customers and leveraging advanced accreditation bodies to promote best practice in ethical standards, analytics to improve waste and markdowns. Our store network safety, labour standards, human rights and animal welfare. In strategy is expected to deliver approximately 1.5% space growth addition, we are committed to building strong, multigenerational, which will be focused on population growth corridors and in areas collaborative relationships with Australian farmers and producers. where there are market share gaps. In FY22, we expect to open While the COVID-19 outlook remains uncertain, including the extent approximately 20 stores and renew approximately 50 stores. of lockdowns, we believe the roll-out of the vaccination program will Together to Zero encompasses our ambitions of Together to zero continue the reversal of the local shopping trend as customers emissions, Together to zero waste, and Together to zero hunger. Our become more confident to shop in larger shopping centres resulting ambition of Together to zero emissions is underpinned by three key in a stronger performance of shopping centre stores. Increased commitments: to deliver net zero greenhouse gas emissions by 2050; movement will also assist in the restoration of fuel volumes towards pre-COVID-19 levels.

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Risk management

Our operating environment continues to rapidly evolve, resulting in changes Overview to the risks and uncertainties that we face. We regularly review our risks and their mitigations, so we can support the delivery of our purpose and strategy and respond to challenges faced by Australian businesses, the retail

industry, and the communities we serve. and Review Financial Operating

During the year, Coles has continued to identify and manage risks in are not limited to: evolution of the virus, rates of infection, the accordance with the Coles Risk Management Framework. The design treatment and vaccination rollout timeline, and government of this Framework is based on ISO 31000:2018 Risk management – regulatory and policy response (including government responses to Guidelines (‘ISO 31000’), which provides an internationally recognised outbreaks, shutdowns of sectors of the economy, border closures, set of principles and guidelines for managing risks in organisations. and variations in restrictions between states and countries). Further information about our Risk Management Framework is available in Coles’ Corporate Governance Statement. COVID-19 continues to adversely impact the local and global economy. However, the severity, duration and extent of impact in Through application of the Coles Risk Management Framework, we each affected jurisdiction remains uncertain and highly connected

have identified material strategic, operational, and financial risks to other key trends, including technology adoption, government Report Directors’ which could adversely affect the achievement of our future financial policies and geopolitical tensions, immigration patterns, population prospects. Each of these material risks is described below along with growth, and demographic shifts, and the resilience of both domestic key mitigation plans to manage them. Although the risks have been and international supply chains. We mitigate exposures to macro- described individually, there is a high level of interdependency economic and geopolitical conditions through our business- between them, such that an increased exposure for one material risk planning process, which considers and routinely monitors future can drive elevated levels of exposure in other areas of our risk profile. market conditions and consumer preferences; and diversification of

In addition to these material risks, our performance may also be products and markets. Report Remuneration impacted by risks that apply generally to Australian businesses and the retail industry, as well as by the emergence of new material risks The table overleaf sets out our existing material strategic, operational not reported below. and financial risks and a summary of the key mitigation plans in place to manage them. We anticipate that the evolving nature of the COVID-19 COVID-19 pandemic and the changing macro-economic and geopolitical environment will drive continual changes to Coles’ There continues to remain a high level of uncertainty with regard to material and emerging risks during the next financial year and how the COVID-19 pandemic will evolve both domestically and beyond. We will therefore continue to monitor and respond to further internationally, along with corresponding responses from developments as required, including ongoing review and Report Financial governments, businesses, customers and the broader community enhancement of our risk mitigation plans. over the short and long term. Key drivers of uncertainty include, but Shareholder Information

The health and safety of our customers and team members underpins our response to the COVID-19 pandemic. Programs to keep our customers and team members safe include the use of QR code check-in systems, masks, sanitisation stations and additional cleaning and security.

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Strategic risks

Risk Description Mitigations

Pandemic

If Coles does not monitor and respond to Coles continues to manage the evolution of the COVID-19 pandemic in accordance with our the evolution of COVID-19 or future Coles Group Response Policy and Program which sets out the governance arrangements, pandemics, there is a risk of exposure to accountabilities, and processes for crisis management and business continuity, and our material financial loss including as a result Coles SafetyCARE System which is the safety management system that provides a framework of higher input costs, additional for Coles to look after the health, safety and wellbeing of our team members, customers, operational costs, and reduction of sales contractors, suppliers and visitors. and margins; legal and regulatory action; people, health and safety issues; and/or Our response is led by our Executive-level Response Leaders who are supported by the Head reputational damage. of Response. Business continuity functional leads are assigned to manage dedicated streams of work to identify, prepare and respond to emerging risks and issues across the Group. Furthermore, the pandemic exposes us to Critical response decisions are reviewed by Coles’ Executive Leadership Team and elevated the significant and/or prolonged to the Board, where required. disruptions in the supply chain, store and online operations which can impact on our Business continuity plans are in place for critical functions and activities across our ability to serve our customers and the operations including merchandising, supply chain and store and online operations. Our community. plans include consideration of people, resources, physical sites, information technology and digital requirements, and critical third parties required to continue to operate and serve our customers and community.

These plans have been invoked when required during our response and continue to be refined given the evolving nature of, and our continued exposure to, the pandemic. This includes ongoing assessment of risks, contingency plans and resourcing arrangements.

Competition, changing consumer behaviour and digital acceleration

If Coles fails to respond to competitive The COVID-19 pandemic has shifted consumer behaviour and expectations toward an pressures and changing customer increased focus on safety measures, sourcing and shopping locally, and reliance and demand behaviours and expectations, it could on online shopping and digital channels. Key programs to respond to these risks and build on result in loss of market share and, opportunities are embedded in the implementation of our strategy including automation of ultimately, adverse margin impacts, the supply chain. reduced customer retention and impact to share price or value. Coles regularly monitors customer sentiment, best practice global retailers, local and international learnings, and customer insights and research, so we can quickly respond to changes in customer behaviours.

We continue to focus on driving an enhanced digital customer experience through Coles Online, our digital catalogue, the coles.com.au platform including coles&co, the new Click & Collect Rapid and Coles Plus subscription service; and leverage flybuys to help personalise customer communications. We also continue to invest in new data analytics tools and platforms to give suppliers and category decision makers fast and detailed insights across products, stores, geographies and sales channels.

Strategy and transformation delivery

Inability to properly execute and deliver Delivery of our strategy and transformation program is determined by the effective our strategy and transformational implementation of each of the three pillars of our strategy. programs, including strategic projects with Witron and Ocado, could result in loss of Furthermore, elements of our strategy are supported by third-party strategic partnerships market share, and variability in Coles’ including Witron (automated distribution centres), and Ocado (enhanced online capability). earnings. We also have joint ventures with (flybuys) and Australian Venue Co. (Queensland Venue Co. Pty Ltd), and an alliance with Viva (Coles Express). Pauses or delays in the execution of areas within our strategy and transformation In addition, Coles may undertake future acquisitions and divestments, and enter into other programs and projects, may occur due to third-party relationships, so we can more effectively execute our strategy. disruptions brought about by the COVID-19 We have governance structures and processes in place to oversee, manage and execute our pandemic including disruptions in supply strategy and transformational programs of work, including our strategic projects with Witron of capital inputs and services, and to and Ocado. Projects and programs are regularly reviewed in detail to monitor progress of critical third parties whom we rely on to program delivery, costs and benefits, and allocation of resources. deliver our strategic and transformational programs of work.

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Climate change and the environment Climate change presents an evolving set of Coles had previously developed a roadmap to enable us to align with the recommendations risks and opportunities for Coles, and has of the Task Force on Climate-related Financial Disclosures. During FY21, we continued to the potential to contribute to and increase implement actions identified. During the financial year we also worked with external climate the exposure of other material risks. These change specialists to further assess our climate change risks and opportunities. Additional include increased frequency/intensity of information on these risks and opportunities is set out in the Climate Change section. extreme weather events and chronic climate changes which can disrupt our In March 2021, we launched Together to Zero which communicates our ambitions to reduce our impact on the environment (emissions, waste and hunger), along with targets for operations and compromise the safety of Overview our team members, customers, supply greenhouse gas emissions and renewable electricity, and our public-facing Climate Change chain and the food we sell; and changes to Position Statement. In June 2021 we released our Sustainability Strategy which highlights government policy, law and regulation, Coles’ commitments across the Together to Zero and Better Together pillars of our strategy. which can result in increased costs to

The Board oversees the effectiveness of Coles’ environment, sustainability and governance and Review Financial Operating operate and the potential for litigation. policies and retains ultimate oversight of material environmental and sustainability risks and An inability to reduce our environmental opportunities, including those related to climate change. impact and meet our external The Board has endorsed the Group Sustainability Steering Committee as the management sustainability commitments could also group responsible for overseeing the Group-wide identification and response to sustainability result in reputational damage, loss in issues, including climate change. It is chaired by the Chief Sustainability, Property & Export market share, and fines and penalties. Officer, a member of the Executive Leadership Team, who reports to the Chief Executive Officer. The Chief Executive Officer has ultimate responsibility for sustainability at Coles.

The Sustainability Steering Committee is supported by other steering committees, subcommittees and working groups including the Human Rights Steering Committee, the

Diversity and Inclusion Council, the Climate Change Subcommittee and the Coles Express Report Directors’ and Coles Liquor sustainability working groups. Our progress against the Sustainability Strategy will be reported annually in the Coles Group Sustainability Report.

Operational risks

Risk Description Mitigations

Industrial relations Report Remuneration

As we execute our strategy, workforce Coles has in place dedicated Employee Relations resources which are responsible for changes may lead to industrial action and/ monitoring and responding to industrial relations risks and issues. Key activities include or disruptions to operations, which can implementation of appropriate enterprise agreements and employee relations strategies; result in increased costs, litigation and maintaining and building strong working relationships with unions and industry financial impacts from reputational organisations; and constructively liaising with our team members, third-party suppliers damage. The emergence of COVID-19 along and transport and logistic service providers. with planned changes in our supply chain Financial Report Financial operations, has heightened our exposure to The renegotiation of enterprise agreements is proactively managed and business this risk. continuity plans are in place to mitigate disruption to operations if industrial action occurs.

Security of supply

Potential disruption to the supply of goods We have business continuity plans to manage the supply chain and delivery of goods to for resale and services required to deliver stores during extreme weather and business disruptive events. Shareholder Information our core operations can occur due to extreme weather events and changes in Our COVID-19 response includes sourcing alternative supply arrangements, scaling up climate, changes in domestic and production and distribution of substitute goods (potentially simplifying range to aid international government and policy, production efficiency), rapid onboarding of new suppliers, management of the promotions regulation, geopolitical factors, and calendar to support availability and where necessary (for example during COVID-19) the disruptions caused by the evolving introduction of purchasing limits. COVID-19 pandemic, including suspension Medium and longer term international and domestic supply security risks and mitigations of production, domestic and international are assessed on an ongoing basis as part of our category planning program. We also border closures, and restricted access to continue to analyse Coles’ supply chain resilience in key food categories, including meat, the workforce our suppliers rely on to dairy and seafood. produce goods. Supply chain disruptions can result in an inability to supply to customers, loss of market share, price volatility and increased costs.

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Health and safety

The safety of our team, customers, third Our detailed Health, Safety and Injury Management system (SafetyCARE) is supported by a parties and contractors is paramount to team of experienced safety professionals throughout our network. SafetyCARE’s Coles. We employ an extensive and diverse performance is measured through a range of indicators and the effectiveness of the system workforce, including third parties, with high is assessed through a verification program. A rolling five-year safety and wellbeing plan volumes of people interactions daily. This focuses on Safety Leadership and culture, Critical risk reduction, and Mind your health. may result in risk of fatality, life-threatening injuries or transmission of disease to team The health and safety of our customers and team members underpins our response to the members, customers, suppliers, COVID-19 pandemic. Coles has adopted enhanced hygiene practices based on contractors or visitors, due to unsafe work recommendations from the Australian Government through Safe Work Australia and based practices, accidents or incidents. on information from the Federal Department of Health, state and territory governments and departments of health and other applicable regulatory bodies. A large number of Furthermore, the ongoing COVID-19 measures have been implemented. pandemic can have adverse impacts to team member health and wellbeing These include programs to keep our customers and team members safe incorporating: (including mental health) and introduces social distancing measures, the use of QR code check-in systems, sneeze guards, the potential for loss of key personnel due sanitisation stations, masks, additional cleaning and security, immediate escalation and to infection. reporting protocols, and the implementation of large-scale mental health and wellbeing programs for our team members.

Product and food safety

Product and food safety and quality is Coles has a food safety governance program in place which is overseen by an experienced critical for Coles. Serious illness, injury or technical team. The program comprises targeted policies and procedures, including well- death are the most severe potential risks established food recall and withdrawal processes, specific supplier requirements for from compromised product or food safety. different food categories (for example chilled versus ambient) and a supporting assurance Loss in customer trust, reputational program to ensure key controls are operating and effective. damage, loss in sales and market share, regulatory exposure, and potential litigation We also have a Product Safety Program which covers non-food products, and work closely could also occur. with our suppliers to ensure compliance with relevant mandatory product safety and labelling standards and to meet consumer guarantees under the Australian Consumer Law. Our Product and Food Safety Committee oversees continuous improvement of food and product safety risks and issues across Coles.

Third-party management

An inability to successfully manage and Coles has due diligence processes in place to assess the adequacy and suitability of key leverage our strategic third-party suppliers, service providers and strategic partners in accordance with our requirements. relationships, or a critical failure of a key We monitor and manage quality and performance of key suppliers and strategic third supplier or service provider, may expose parties throughout their engagement with Coles. Defined service level and key performance Coles to risks related to compromised indicators are in place for key supply contracts. Risks are managed via contractual safety and quality, misalignment with protections. ethical and sustainability objectives, disruptions to supply or operations, Third-party management (goods not for resale) is governed by the Third Party Management unrealised benefits, and legal and Policy which includes requirements for sourcing and contract management, and the regulatory exposure. application of our SAP Ariba technology platform for sourcing, contracting, buying and invoicing. Plans for FY22 include the continued uplift and embedding of risk management, contract management and supplier management requirements for goods not for resale engagements.

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Legal and regulatory

The diversity of our operations necessitates Coles has in place a Compliance Framework, which is based on AS ISO 19600:2015 compliance with extensive legislative Compliance Management Systems – Guidelines, and which sets out the standards, requirements at all levels of government, requirements and accountability for managing regulatory compliance obligations across including corporations law, competition and the Group. consumer law, health and safety, industrial relations, employment, product and food safety, The Compliance Framework is subject to continual review and assurance, including environment, council by-laws, privacy and through Coles’ internal audit process. Overview bio-security. We also maintain relationships with regulators and industry bodies and actively monitor Non-compliance with key laws and regulations, new and impending legislative and policy changes. could expose Coles to loss of license to operate, Our legal teams work in partnership with our compliance teams to monitor and manage substantial financial penalties, reputational legal issues, matters, claims or disputes. We are supported by pre-agreed panel and Review Financial Operating damage, a deterioration in relationships with arrangements with external legal firms and assess any potential litigation claims to regulators, class action or other litigation and understand loss potential. additional regulatory changes which may adversely impact the execution of our strategy and result in increased cost to operate. Furthermore, where Coles is a party to litigation, it can involve reputational damage, financial costs, and high investment of Company resources and time. For example, in February 2020, Coles announced that it had identified discrepancies between the salaries paid to some Directors’ Report Directors’ store team managers and their entitlements under the General Retail Industry Award. At the current time, Coles is defending a class action in the Federal Court in relation to this issue, and responding to an investigation by the Fair Work Ombudsman.

Ethical sourcing Report Remuneration

Failure to source product or conduct our Our Ethical Sourcing Policy and supplier requirements are based on internationally business in a manner that complies with our recognised standards and establish the minimum standards for all suppliers. Coles Ethical Sourcing Policy and relevant legal requirements across Australia and the Coles’ Ethical Sourcing Program takes a risk-based approach which defines the level of countries we source from, can result in due diligence and monitoring that applies to suppliers based on risk exposure and impact to worker safety, wellbeing or living includes a requirement for ethical audits of selected suppliers. The program includes conditions, material reputational damage, Coles Own Brand and fresh produce suppliers, Coles Own Liquor Brands, and selected loss in consumer confidence and market Goods Not for Resale suppliers. Report Financial share, regulator fines and penalties, and During the financial year we engaged external specialists to review the effectiveness of adverse financial performance. our key risk indicators for ethical sourcing, and to support the development of a risk-based approach for managing overdue non-conformances detected at suppliers’ sites relating to working hours.

We also introduced new resources dedicated to the execution of the Human Rights Shareholder Information Strategy and Ethical Sourcing Program, increased supplier and working education including through our partnership with the Ethical Retail Supply Chain Accord, embedded a program to follow-up on the closure of supplier critical and major non-conformances, and conducted ‘risk deep dives’ in key areas such as security, uniforms and floor care.

Coles’ whistle-blower hotline and dedicated supply chain wages and conditions hotline enable reporting of unethical, illegal, fraudulent or undesirable conduct.

Additional information on Coles’ Ethical Sourcing Program can be found in our 2021 Modern Slavery Statement.

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Information technology, resilience, data and cyber security

A failure or disruption to our information We have a rolling five-year technology strategy and continuously monitor our technology technology applications and infrastructure, operations. We also have a cyber-security framework in place which we use to assess the including a cyber-security event, could maturity of our cyber-security capabilities and identify priority areas for improvement and impede the processing of customer further investment. Our cyber-security framework is aligned to the internationally transactions, or limit our ability to procure recognised National Institute of Standards and Technology (NIST) Cybersecurity or distribute stock for our stores or Framework. Additionally, our security policies and standards are aligned to ISO otherwise impact the operations of our 27002:2013 Information technology — Security techniques (‘ISO 27002’), which provides business. an international code of practice for information security controls.

Cyber-security threats include ransomware, Our cyber-security roadmap is updated regularly and is independently assessed to help product vulnerabilities, business email us make investment decisions which are commensurate with risks to the business, in line compromise, and phishing scams resulting with similar businesses, and supports Coles’ business direction. in system compromise. Our privacy and digital security policies, procedures, governance forums, education and Many factors including increased flexible awareness programs, and active membership with the federal government Joint Cyber working arrangements as a result of Security Centre, help to strengthen our ongoing management of evolving data, privacy COVID-19, our growing external digital and cyber-security threats. We also regularly test and review our information technology footprint, increased reliance on technology, infrastructure, systems, and processes to assess security threats and the adequacy of volume of third-party providers and controls. growing sophistication of cyber criminals, has resulted in Coles operating in an ever We actively manage technology changes to reduce the risk of system instability, especially increasing cyber-security threat during peak trading periods. Our service management function is responsible for environment. responding to incidents, should a disruption occur.

Furthermore, our technology and data-rich In the event of a disruption, we have information technology recovery plans in place for environment also exposes us to the risk of critical systems and dedicated plans to respond to data loss. We also have retained unintentional or unauthorised access to industry experts to be on call in the event of a cyber-security incident. confidential, financial, or personal information, which may result in loss in consumer confidence, loss in market share, regulatory fines and penalties, and reputational damage.

Financial risks

Risk Description Mitigations

Financial, treasury and insurance

The availability of funding and management Our Group Treasury function is responsible for managing our cash funding position and of capital and liquidity are important supporting the management of interest rate and foreign currency risks. Our Treasury requirements to fund our business Policy and related policies are approved by the Board, and govern the management of operations and growth. In addition, we are our financial risks, including liquidity, interest rates, foreign currency and commodity exposed to material adverse fluctuations in risks and the use of other derivatives. Further information is included in Note 4.2 interest rates, foreign exchange rates and Financial Risk Management of the Financial Report. commodity movements which could impact business profitability. We may also be Insurance is a tool to protect our customers, team members and the Group against exposed to financial loss from accidents, financial loss, where applicable. In some cases, we choose to self-insure a significant natural disasters and other events. proportion of the risk. This means that, in the event of an incident, the cost is covered from internal premiums charged to the business or the losses are absorbed. Our insurance function is responsible for managing both self-insurance and the purchase of external insurance where we determine this is prudent. We monitor our self-insured risks and have active programs to help us pre-empt and mitigate losses. We engage an external actuary to determine the self-insurance liabilities recognised in the Statement of Financial Position.

In the Operating and Financial Review we have documented the trading and financial reporting impacts of the pandemic.

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Climate change

We acknowledge the risks climate change presents to the community functions with key sustainability responsibilities including Risk and Overview and the planet. Coles supports the goals of the Paris Agreement to Compliance, Sustainability, Coles Brand, People and Culture, limit global warming to well below 2, preferably to 1.5 degrees Marketing, Company Secretariat and Corporate Affairs. Celsius, compared to pre-industrial levels. As climate change is recognised as having wide-ranging implications We support the recommendations of the Task Force on Climate- for our business, responsibilities for managing and mitigating and Review Financial Operating related Financial Disclosures (TCFD) and information in this section climate-related risks are Group-wide. The Group Sustainability responds to the four thematic areas against which the TCFD Steering Committee coordinates this response through a specific recommendations are structured. We also use the TCFD framework Climate Change Subcommittee which oversees Coles’ climate to drive our climate change strategy and response. change approach and reports to the Sustainability Steering Committee and its Chair. As one of Australia’s largest companies, we understand our responsibility to minimise our environmental footprint, as well as to The Subcommittee is chaired by the General Manager Sustainability mitigate the environmental, health and social impacts of climate and Property Services and includes senior leaders from key functions change. We will do this by: within Coles, including Finance, Strategy, Risk and Compliance, and Sustainability. • building the resilience of our business, supply chain and Directors’ Report Directors’ community against climate change related impacts, both Strategy and approach physical and transitional (managing climate-related risks and opportunities); Our approach to sustainability, and climate change, is captured under the Win Together pillar of our corporate strategy. • building a roadmap aligned with the Paris Agreement and taking action to reduce our climate impacts (decarbonisation); and During FY21, the Board endorsed our refreshed sustainability • using our position and voice to play a constructive role in strategy with its two focus areas – Together to Zero and Better

influencing others to meet similar goals (influencing climate Together. Report Remuneration action). Together to Zero sets out our ambitions to reduce our impact on the Coles supports the United Nations (UN) Sustainable Development environment including in the areas of climate change, waste and Goals including Goal 13 (Climate action) and the UN Global Compact hunger. Better Together recognises that when we work together, we Principles (including Principles seven, eight and nine which relate to can make a real difference to our team, our supplies and producers, the environment). our customers and to the communities in which we live and work.

Governance To enhance our climate change response and disclosures we are

continuing to develop a roadmap and associated action plans which Report Financial The Board oversees the effectiveness of Coles’ environment, align with the recommendations of the TCFD. Our approach was sustainability and governance policies and retains ultimate oversight endorsed by the Board and highlights the key milestones we need to of material environmental and sustainability risks and opportunities, meet to enable more comprehensive climate change responses and including those related to climate change. disclosures.

The Audit and Risk Committee assists the Board in fulfilling its We are addressing the Together to zero emissions component of our

responsibilities. The Committee evaluates the adequacy and sustainability strategy under the following three key areas: Shareholder Information effectiveness of Coles’ identification and management of material environmental and social sustainability risks as well as reporting of Managing climate-related risks and opportunities those risks. The Committee receives reports from management on More details can be found in the Risk Management section below. new and emerging sources of risk and the controls and mitigation measures management has put in place to address those risks. Influencing climate action

The Board has endorsed the Group Sustainability Steering With thousands of locations across Australia, more than 120,000 Committee as the management group responsible for overseeing team members and an average of 20 million customer transactions the Group-wide identification and response to sustainability issues, across our business each week, we have a deep connection with including climate change. It is chaired by the Chief Sustainability, urban, regional and rural communities. Property and Export Officer, a member of the Executive Leadership Team who reports to the Chief Executive Officer. The Chief Executive Our ability to influence climate action is not limited to those areas Officer has management responsibility for sustainability at Coles. directly under our control, but more broadly across our value chain. The Committee’s standing members comprise management from We continue to seek out opportunities to work together with our

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Coles became the first major Australian retailer to commit to buying renewable electricity through a 10-year Power Purchase Agreement with global renewable power generation company MYTILINEOS (Renewables & Storage Development Business Unit, previously known as METKA EGN). The agreement with MYTILINEOS’ RSD Business Unit will see Coles purchase 70% of the electricity generated by three solar power plants which are being constructed in Corowa, Wagga and Junee in regional New South Wales. Pictured here are Coles Store Manager Stuart and Ian Kirkham from MYTILINEOS’ RSD Business Unit at the Corowa site which became fully operational in June 2021.

More information can be found at www.colesgroup.com.au

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team members, suppliers, customers and communities to create 2. Ambitious global climate action – Where there is active positive change. Our aim is to find constructive and proactive movement towards the goals set in the Paris Agreement to limit approaches to reduce emissions, develop resilience to climate global warming to well below 2, preferably to 1.5 degrees Celsius, impacts and build momentum towards the aims of the Paris compared to pre-industrial levels. Agreement. 3. Runaway climate change – Where there is no limit placed on We continue to constructively engage on issues and challenges carbon emissions and warming is set to reach 4°C above pre- associated with climate change and climate policy with a consistent industrial levels. and balanced approach that is responsive to the needs of

stakeholders. As a result of our analysis and risk assessment, we acknowledge Overview climate change will impact aspects of our business to varying levels Decarbonisation under each of the assessed scenarios.

We continue to reduce greenhouse gas emissions and implement The scenario analysis work, which continues to be refined, identified

initiatives to reduce greenhouse gas emissions in areas over which actions to support Coles’ resilience to potential climate change and Review Financial Operating we have control and influence. impacts that can be undertaken as part of Coles’ future annual strategy planning process. This was the first scenario analysis Where practicable we seek to deploy mature and available conducted for Coles’ strategy and will continue to be developed and technology to reduce our greenhouse gas emissions and work with analysed over time. As such, we will continue to review internal industry and stakeholders to invest in knowledge and research to processes to adapt and respond in alignment with our strategy. identify pathways to address difficult, or as yet unsolved, decarbonisation challenges. During FY21, we also updated our assessment of Coles’ climate- related risks and opportunities. This qualitative assessment applied We are committed to delivering on our targets: the risk management processes defined within Coles’ Risk • net zero greenhouse gas emissions by 2050; Management Framework and applied the same three climate change scenarios used to conduct the high-level analysis on the resilience of Directors’ Report Directors’ • the entire Coles Group to be powered by 100% renewable our Coles Group strategy. The risk assessment included interviews electricity by the end of FY25; and and workshops with stakeholders across the Group including • reduce combined Scope 1 and 2 greenhouse gas emissions by Property, Export, Supply Chain, Product, Coles Brand, Coles Liquor, more than 75% by the end of FY30 (from a FY20 baseline). Coles Express, Legal and Corporate Affairs.

We are progressing work to assess and analyse our Scope 3 emissions Our most significant climate-related risks and mitigants are with the intention of developing a Scope 3 target. presented in the following table, along with our approach to

managing them. They have been grouped into the two major Report Remuneration Risk management categories of climate-related risks identified by the TCFD: (1) risks Through the application of the Coles Risk Management Framework, related to the transition to a lower-carbon economy and (2) physical climate change has been identified as a material business risk to the risks (acute and chronic). Many of the physical and transitional risks Group. identified are also considered to be material business risks which can become further exacerbated by climate change. During FY21, we commenced a high-level scenario analysis on the impacts of climate change on the resilience of our Coles Group The analysis of the risk exposures considers financial, reputational, health and safety, legal and regulatory, and operational strategy. The purpose of this analysis was to identify possible Report Financial responses to increase Coles’ resilience to future climate change consequences in the short term (0-3 years) and medium-long term under three possible climate change 2030 scenarios: (5-10 years).

1. Stated policies – Assuming current government policies already in place result in 3°C warming above pre-industrial levels. Shareholder Information

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Transition risks

Risk and impact Mitigation plans

Corporate responsibility and stakeholder expectations

Coles has a responsibility to minimise the impact of our In March 2021 we launched Together to Zero, along with targets for operations on the environment. We also recognise that the greenhouse gas emissions reduction and renewable electricity, and expectations and preferences of our team members, customers, our public-facing Climate Change Position Statement. community, investors and NGOs are shifting in relation to climate change and the environment. This includes enhanced We have teams and processes in place to understand, monitor and expectations around sourcing and selling sustainable and respond to the concerns and expectations of our key stakeholders ethically sourced products, improving energy efficiency, and and society more broadly. reducing greenhouse gas emissions and waste. A roadmap has been developed and action has commenced to Potential financial impacts if we do not respond to these enhance our climate change response and transition to a lower- stakeholder expectations appropriately include reduced carbon economy. revenue due to reduced demand for goods and services, We have governance arrangements in place to manage and monitor increased costs due to loss of team members or third parties development and progress of sustainability plans and initiatives, with whom we do business, and loss in market share. including for climate change.

For further information please refer to our 2021 Sustainability Report.

Changing policy and regulatory requirements

New and evolving climate-related regulations can result in Regulatory non-compliance is one of our material business risks and increased implementation or operational cost to deliver is managed with regards to the risk appetite statements and key risk compliance, including enhanced reporting requirements. It indicators agreed by the Board. could also result in breaches of requirements leading to fines and penalties. In extreme circumstances it can lead to litigation. The Coles Compliance Framework, which is based on AS ISO 19600:2015 Compliance Management Systems – Guideline, sets out Changing policies in existing and future markets may also the standards, requirements and accountability for managing negatively impact our business, including but not limited to, the regulatory compliance obligations across the Coles Group. We also introduction and/or expansion of trading taxes and barriers on monitor new and impending legislative and policy changes. high emissions including carbon pricing. We recently commenced a high-level scenario analysis on the impacts of climate change on the resilience of our Group strategy which will continue to be developed and analysed over time. This analysis considered policy and regulation outcomes under three possible climate change scenarios. Refer to the Risk Management section for further information on this scenario analysis.

Physical risks

Risk and impact Mitigation plans

Health and safety

Increases in the frequency and intensity of extreme weather Health and safety is one of our material business risks and is events, and changes in weather patterns, can lead to increasing managed with regards to the risk appetite statements and key risk health and safety risks to Coles team members, customers, and indicators agreed by the Board. third-party suppliers and providers. The Coles Health, Safety and Injury Management system This includes exposure to the risk of physical harm in the event (SafetyCARE) factors in the acute (for example bushfires) and chronic of acute weather events (e.g. floods, storms and fires); and impacts (for example heat fatigue) of climate change. adverse health and wellbeing impacts as a result of chronic changes to climate patterns (e.g. longer and more frequent The system is supplemented by emergency management (our instances of drought, heat or precipitation) which can threaten response to physical threats or events as coordinated by the Health wellbeing and livelihood. and Safety team), and Coles Group Response Policy and Program, which sets out the governance arrangements, accountabilities and processes for crisis management and business continuity.

Learnings from incidents and events, and opportunities for improvement, are identified and incorporated into our safety, emergency management and response plans and processes.

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Supply chain disruption

Our ability to procure, move and sell products domestically and Security of supply is one of our material business risks and is internationally, can be adversely impacted by the occurrence of managed with regards to the risk appetite statements and key risk extreme weather events, and longer-term changes in weather indicators agreed by the Board. patterns. We have business continuity plans to manage the supply chain and Key impacts include disruptions to transportation and logistics delivery of goods to stores during extreme weather and business routes; and to the continuity of site, store, and distribution disruptive events.

centre operations, and third-party operations, due to acute Overview weather events. Chronic changes to weather patterns can Medium and longer-term supply security risks and mitigations are adversely impact supplier productivity and result in increasing assessed on an ongoing basis as part of category planning. We also cost to operate (e.g. due to changing production regions for continue to analyse Coles’ supply chain resilience in key food fresh produce) and reduced revenues. categories including meat, dairy and seafood. Operating and Review Financial Operating Food safety and quality

An increase in the frequency and severity of extreme weather Product and food safety is one of our material business risks and is events and long-term shifts in climate patterns, can lead to food managed with regards to the risk appetite statements and key risk safety and quality risks throughout the supply chain, including indicators agreed by the Board. changing persistence and occurrence of pests and diseases, and lower than expected shelf-life for fresh produce. Coles’ Food Safety Program, including recall and monitoring processes, is updated to adapt to changing conditions. Potential financial impacts include reduced revenue and increased operating costs, along with potential harm to We work with suppliers, industry and regulators to understand and customers’ health and wellbeing, customer dissatisfaction and anticipate new and incremental risks. Directors’ Report Directors’ reputational damage. We have governance arrangements in place to manage and monitor emerging and current food and product safety risks, and our plans to manage them.

Asset integrity and continuity of operations

Acute and chronic weather events can result in physical damage Crisis management, business continuity and emergency response to assets and equipment; and/or inability to access assets and plans are in place to mitigate potential disruptions. These plans are Remuneration Report Remuneration equipment. There may also be more frequent and prolonged updated on a regular basis to take account of changing internal and instances of power outages; and decreases in the efficiency and external risks and conditions. disruption to operation of assets and equipment which are sensitive to climate (e.g. refrigeration units, heating and Store design specifications consider future conditions to improve cooling). their resilience in extreme conditions. We have an ongoing maintenance and asset replacement program to make sure we Potential financial impacts include increased operating and progressively maintain and replace our assets when required. capital costs, increased insurance premiums, and write-offs or Insurance arrangements are in place for property and business

impairment of assets. Report Financial interruption (subject to policy terms, conditions and exclusions).

In addition, consideration has been given to the potential financial impacts of climate change related risks on the amounts reported in the financial statements through a qualitative review of the Group’s climate change risk assessment. This review did not identify any material financial reporting impacts. Shareholder Information

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Our most significant climate-related opportunities are presented in the following table:

Climate change opportunities and actions

Opportunities Actions

Resource efficiency and energy management

To continue to improve our resource efficiency and energy • Ongoing implementation of our Energy Strategy which guides our management and seek opportunities to use lower emission approach to energy procurement, energy management, energy sources of energy. efficiency, renewable energy, and energy-related greenhouse gas emissions. • To support our FY25 renewable electricity commitment, during FY21 we announced the following agreements: – An agreement with ENGIE – the largest independent power producer in the world – to purchase large-scale generation certificates (LGCs) from ENGIE’s Willogoleche and Canunda Wind Farms, in South Australia. – An agreement with French energy producer Neoen to purchase LGCs from its portfolio of renewable power plants located across New South Wales, Queensland, Victoria and South Australia. – An agreement with Lal Lal Wind Farms near Ballarat, Victoria, to purchase LGCs. – An agreement with CleanCo to source more than 90% of Coles’ Queensland electricity requirements. These agreements are in addition to those reported in our FY20 Sustainability Report when Coles became the first major Australian retailer to commit to buying renewable energy through a 10-year Power Purchase Agreement (PPA) with global renewable power generation company MYTILINEOS RSD (previously known as METKA EGN).

• Enhancement of sustainability features in the store design blueprint, such as doors on fridges and optimising lighting.

Ongoing reduction in operational greenhouse gas footprint

To continue to reduce greenhouse gas emissions and • Ongoing implementation of our refrigeration management implement initiatives to reduce greenhouse gas emissions in approach which includes investing in natural refrigerant gases – areas over which we have control and influence. natural gas compounds that have little or no impact on the ozone layer and do not contribute to greenhouse gas emissions. • During FY21, we launched our refurbished Moonee Ponds supermarket. While we have used natural refrigerants in some new supermarkets, this is our first refurbished supermarket in which we have installed this system, a complex process to undertake in a store still trading during the upgrade. • In FY21, Coles Liquor trialed the first natural refrigerant inside a standalone system design. • Deliver targets for renewable energy and to reduce greenhouse gas emissions. More details can be found in the section – Metrics and Targets. • Engagement with suppliers and service providers to identify opportunities to innovate and develop low emissions products and services.

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Supporting Australian producers Coles Nurture Fund support since 2015

Since 2015, more than 80 Australian producers have now received financial support from the Coles Nurture Fund to drive sustainability, innovation and growth. Coles General Manager Meat, Charlotte Gilbert is pictured with Deborah and Phil Reid $28 million from Paringa Gold, at Capella, Queensland, who were awarded a $450,000 Coles Nurture Fund grant to construct water storage and install dedicated milling equipment and bunkers to ferment locally-grown sorghum to feed their cattle.

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Increased operational resilience, supply chain resilience and business continuity planning

We will build the resilience of our business, our community and • Ongoing update of our emergency management plans and our value chain against climate impacts, both physical and business continuity plans, including plans to manage the supply transitional. chain and delivery of goods to stores during extreme weather and business disruptive events. • Working with strategic suppliers to scope initiatives for our most exposed commodities. • Provision of support to suppliers through grants for climate change adaptation and mitigation initiatives via Coles Nurture Fund.

Stakeholder engagement

To seek out opportunities to work together with our team • We will continue to engage with stakeholders to influence climate members, suppliers, customers and communities to create change action. In FY21, this included the launch of Together to zero positive change. Our aim is to find constructive and proactive emissions where we engaged with many stakeholders to progress approaches to reduce emissions, develop resilience to climate and promote this ambition. It was a key focus of our bi-annual impacts and build momentum towards the aims of the Paris Investor Day, our annual team member Sustainability Week and Agreement. We will constructively engage on issues and has been promoted with suppliers in various forums. It was also challenges associated with climate change and climate policy promoted at the launch of our refreshed Moonee Ponds with a consistent and balanced approach that is responsive to supermarket, in advertising and online. the needs of stakeholders.

Industry partnerships and membership

To work with industry and stakeholders to invest in knowledge • Participation in the Australian Beef Sustainability Framework, an and research to identify pathways to address difficult or as yet initiative of the Red Meat Advisory Council managed by Meat and unsolved decarbonisation challenges. Livestock Australia. We consider the framework the most appropriate way to address climate and environmental issues facing the beef industry (such as emissions reduction and deforestation) from a national and industry-wide perspective. • During FY21, we became a corporate member of the Carbon Market Institute and our Chief Executive Officer joined the Climate Leaders Coalition.

Work will continue in FY22 to further explore climate-related risks and opportunities referenced above and determine how these will be addressed through our sustainability initiatives.

Metrics and targets

During FY21, we announced targets to reduce greenhouse gas emissions, including the following commitments:

• to deliver net zero greenhouse gas emissions by 2050; • for the entire Coles Group to be powered by 100% renewable electricity by the end of FY25; and • to reduce combined Scope 1 and 2 greenhouse gas emissions by more than 75% by the end of FY30 (from a FY20 baseline).

As a result of the five agreements in place with renewable electricity providers, Coles has already committed to purchasing more than 70% of the renewable electricity required to meet its FY25 target1 once the agreements commence.

Our main sources of Scope 1 (direct) emissions include emissions from refrigerant gases, natural gas, transport fuel, stationary LPG and diesel for onsite back-up generators, while Scope 2 (indirect) emissions are those associated with electricity use. Scope 3 emissions are indirect emissions (not included in Scope 2) that occur in Coles’ value chain.

We measure and report on Scope 1 and Scope 2 greenhouse gas emissions in line with the National Greenhouse and Energy Reporting Scheme (NGERS) requirements. NGERS requires companies to report annually each October. As such, metrics, including greenhouse gas metrics, are included in our 2021 Sustainability Report.

During FY21, we continued work to better understand our Scope 3 emissions. This work will continue in FY22 with development of a Scope 3 emissions inventory, planned to support our intention of developing a Scope 3 target. We will also progress work on determining boundaries and identifying key areas to address as a priority.

Our climate change response and disclosures are not static. They will continue to evolve as we further understand implications to our business and the community more broadly. We are committed to working together with our stakeholders to help realise our ambition of Together to zero emissions, as detailed in our sustainability strategy.

1 FY25 electricity use has been calculated based on expected electricity growth compared with FY20.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 8:36 AM Coles Group Limited 2021 Annual Report

Board of Directors: Biographical Details

James Graham AM David Cheesewright Overview BE (Chem) (Hons), MBA, FIEAust EngExec, FTSE, FAICD, SF Fin BSc Mathematics and Sports Science (1st)

Chairman and Non-executive Director, Chairman of the Nomination Non-executive Director, Member of the Nomination Committee and Committee and Member of the People and Culture Committee the People and Culture Committee Operating and Financial Review Financial and Operating

Age: 73 Age: 59

James Graham has extensive business, investment, corporate and David Cheesewright retired in early 2018 as President and Chief governance experience, including as a Non-executive Director of Executive Officer of Walmart International, which comprises Wesfarmers Limited for 20 years, prior to his retirement in July 2018. Walmart’s operations outside the United States, including more than James is Chairman of Gresham Partners Limited, having founded the 6,200 stores and over a million associates in 27 countries. David was Gresham Partners Group in 1985. From 2001 to 2009, he was a also responsible for Walmart’s global sourcing operations and offices Director of Rabobank Australia Limited, initially as Deputy Chairman around the world. He was previously President and CEO of Walmart and then Chairman, responsible for the Bank’s operations in Australia EMEA (Europe, Middle East and Africa), CEO Walmart Canada, and and New Zealand. He was also Chairman of the Darling Harbour COO Asda. David’s other prior roles include a range of key positions

Authority between 1989 and 1995. James was previously Managing with Mars Confectionery in the UK across manufacturing, marketing, Directors’ Report Director of Rothschild Australia Limited. James was made a member sales and logistics. David is also a previous board member of Walmex of the Order of Australia in 2008. (Walmart Mexico), Chinese online grocery business Yihaodian, South African retailer and distributor Massmart, The Retail Council of Directorships of listed entities, current and recent (last three years): Canada and ECR Europe and is a prior Chair of Walmart Canada Bank Non-executive Director of Wesfarmers Limited (May 1998 to July 2018) and Gazeley Holdings (UK). David currently sits on the Deans Advisory Board of the Smith Business School and is a Non-executive Director

Steven Cain of Rapha Racing (UK). Report Remuneration MEng (1st) Jacqueline Chow Managing Director and CEO MBA, BSc (Hons), GAICD

Age: 56 Non-executive Director, Member of the Nomination Committee and the Audit and Risk Committee Steven Cain has over 20 years of experience in Australian and international retail. Steven was previously Chief Executive Officer of Age: 49 Supermarkets and Convenience at Limited. He was Chief Financial Report Financial Executive of Carlton Communications plc, a FTSE 100 media group Jacqueline Chow is a Non-executive Director of nib Holdings Limited, company, and Operating Director and Portfolio Company Chairman Charter Hall Group and a Senior Advisor at McKinsey Consulting RTS, at Pacific Equity Partners, a private equity firm. Steven was also the advising clients across industrial, retail, telecommunications, Group Marketing Director, Store Development Director and Grocery financial services and consumer sectors on performance Trading Director of Asda Stores Ltd (UK) during its turnaround and transformation projects. She is also a Director of the Australia-Israel has held roles at UK retail group Kingfisher plc, and Bain & Company. Chamber of Commerce of New South Wales. From 2016 to 2019,

Steven was previously the Managing Director of Food, Liquor and Jacqueline was a Director of Fisher & Paykel Appliances. Jacqueline Shareholder Information Fuel at Coles and was an advisor to Wesfarmers Limited on its previously held senior management positions with Fonterra Co- takeover of the Coles Group in 2007. operative Group, one of the world’s largest dairy product producers and exporters, including Chief Operating Officer, Global Consumer and Food Service. Prior to that, she was in senior management with Campbell Arnott’s and Kellogg Company. She was also Programme Steering Group Director, Ministry for Primary Industries, NZ and Deputy Chair, Global Dairy Platform Inc.

Directorships of listed entities, current and recent (last three years):

Non-executive Director of nib Holdings Limited (since April 2018); Charter Hall Group (since February 2021)

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DRAFTDRAFT 25 2 COL1858_AR_2021_d25aCOL1858_AR_2021_d2a September September 16, 16, 2021 2021 9:39 9:39 PM PM Coles Group Limited 2021 Annual Report

Abi Cleland Paul O’Malley MBA, BCom/BA BCom, M.AppFinance, ACA

Non-executive Director, Member of the Nomination Committee and Non-executive Director, Chairman of the Audit and Risk Committee the People and Culture Committee and Member of the Nomination Committee

Age: 47 Age: 57

Abi Cleland is currently a Non-executive Director of Paul O’Malley is a Non-executive Director of of Limited, Sydney Airport Corporation Limited and Orora Limited. Abi Australia Limited. He was Managing Director and Chief Executive was previously Chair of Planwise AU, a director of Swimming Australia Officer of BlueScope Steel Limited from 2007 to 2017, after joining the and on the Lazard PE Fund advisory committee. From 2012 to 2017, company as Chief Financial Officer. Paul was previously the Chief Abi established and ran an advisory and management business, Executive Officer of TXU Energy, a subsidiary of TXU Corp based in Absolute Partners, focusing on strategy, mergers and acquisitions Dallas, Texas. He held other senior financial management roles and disruption. Before that, she held senior management roles at within TXU and previously worked in the investment banking and KordaMentha’s 333, where she was Managing Director, and at ANZ consulting sectors. Paul is a former Director of the Worldsteel Banking Group Limited, Limited and Limited. Association, Chair of their Nominating Committee and Trustee of the Melbourne Cricket Ground Trust. He currently serves as the Chairman Directorships of listed entities, current and recent (last three years): for Australian Catholic Redress Ltd.

Non-executive Director of Computershare Limited (since February Directorships of listed entities, current and recent (last three years): 2018); Sydney Airport Corporation Limited (since April 2018); Orora Limited (since February 2014) Non-executive Director of Commonwealth Bank of Australia Limited (since January 2019) Richard Freudenstein LLB (Hons), BEc Wendy Stops BAppSc (Information Technology), GAICD Non-executive Director, Chairman of the People and Culture Committee and Member of the Nomination Committee Non-executive Director, Member of the Nomination Committee and the Audit and Risk Committee Age: 56 Age: 60 Richard Freudenstein is a Non-executive Director and Chairman- elect of Appen Limited as well as a Non-executive Director of REA Wendy Stops is a Non-executive Director of Limited, Group Limited (where he was Chairman from 2007 to 2012). He is also Director of Fitted for Work, a Council member at the University of a board member of Cricket Australia, Deputy Chancellor of the Melbourne, Chair of the Advisory Board for the Melbourne Business University of Sydney and a member of the Advisory Board of artificial School’s Centre for Business Analytics, a member of the AICD’s intelligence software company, Afiniti. Richard was previously Chief Governance of Innovation and Technology Panel and a member of Executive Officer of Foxtel (2011 to 2016), Chief Executive Officer of the Advisory Committee to the Digital Technology Taskforce of the The Australian and News Digital Media at News Ltd (2006 to 2010), Department of Prime Minister and Cabinet. Wendy was previously a and Chief Operating Officer at British Sky Broadcasting plc (2000 to senior management executive in the information technology and 2006). His previous board positions include Ten Network Holdings consulting sectors, including her last 16 years with Accenture in (2015 to 2016), Foxtel (2009 to 2011) and Astro Malaysia Holdings various senior management positions in Australia, Asia Pacific and Berhad (2016 to 2019). globally. Her previous board experience includes Commonwealth Bank of Australia Limited, Limited, Accenture Software Directorships of listed entities, current and recent (last three years): Solutions Australia and Diversiti. She is currently a member of Chief Non-executive Director of Appen Limited (since August 2021); REA Executive Women and a Graduate of the AICD. Group Limited (since November 2006); Astro Malaysia Holdings Directorships of listed entities, current and recent (last three years): Berhad (September 2016 to August 2019) Non-executive Director of Blackmores Limited (since April 2021); Commonwealth Bank of Australia Limited (March 2015 to October 2020); Altium Limited (February 2018 to November 2019)

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DRAFTDRAFT 25 2 COL1858_AR_2021_d25aCOL1858_AR_2021_d2a September September 16, 16, 2021 2021 9:39 9:39 PM PM Coles Group Limited 2021 Annual Report

Directors’ Report Overview Operating and Financial Review Financial and Operating

The Directors present their report on the consolidated entity consisting of Coles Group Limited (‘the Company’) and its controlled entities at the end of, or during, the financial year ended 27 June 2021 (collectively, ‘Coles’ or ‘the Group’).

The information referred to below forms part of and is to be read in conjunction with this Directors’ Report:

• the Operating and Financial Review • the Remuneration Report • Board of Directors: Biographical Details • Note 7.3 Auditor’s remuneration to the financial statements accompanying this report Directors’ Report • Note 7.5 Events after the reporting period to the financial statements accompanying this report • the Auditor’s Independence Declaration required under section 307C of the Corporations Act 2001 (Cth).

Directors

The Directors in office as at the date of this report are: Remuneration Report Remuneration NAME POSITION HELD PERIOD AS A DIRECTOR James Graham AM Chairman and Independent, Non-executive Director Appointed 19 November 2018 Steven Cain Managing Director and Chief Executive Officer Appointed Chief Executive Officer 17 September 2018 Appointed Managing Director 2 November 2018 David Cheesewright Independent, Non-executive Director Appointed 19 November 2018 Jacqueline Chow Independent, Non-executive Director Appointed 19 November 2018 Abi Cleland Independent, Non-executive Director Appointed 19 November 2018

Richard Freudenstein Independent, Non-executive Director Appointed 19 November 2018 Report Financial Paul O’Malley Independent, Non-executive Director Appointed effective 1 October 2020 Wendy Stops Independent, Non-executive Director Appointed 19 November 2018

The biographical details of the current Directors set out information about the Directors’ qualifications, experience, special responsibilities and other directorships.

The following person was also a Director during FY21: Shareholder Information

NAME POSITION HELD PERIOD AS A DIRECTOR Zlatko Todorcevski Independent, Non-executive Director Appointed 19 November 2018 and retired 30 September 2020

Company Secretary

Daniella Pereira LLB (Hons), BA

Daniella Pereira was appointed the Company Secretary of Coles Group Limited on 19 November 2018. Daniella has an extensive career in legal, governance and company secretariat, including a 14-year career with ASX-listed industrial chemicals company Incitec Pivot Limited. Daniella began her career as a lawyer with Ashurst (formerly Blake Dawson).

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DRAFT 2 COL1858_AR_2021_d2a September 16, 2021 9:39 PM DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM Coles Group Limited 2021 Annual Report

Directors’ meetings

The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the Directors of the Company during the financial year are listed below:

AUDIT AND RISK PEOPLE AND CULTURE NOMINATION BOARD COMMITTEE COMMITTEE COMMITTEE DIRECTOR – CURRENT1,2 Held Attended Held Attended Held Attended Held Attended James Graham 14 14 5 5 2 2 Steven Cain 14 14 David Cheesewright 14 14 5 5 2 2 Jacqueline Chow 14 14 5 5 2 2 Abi Cleland 14 14 5 5 2 2 Richard Freudenstein 14 14 5 5 2 2 Paul O’Malley3 11 11 3 3 1 1 Wendy Stops 14 14 5 5 2 2 DIRECTOR – FORMER Z Todorcevski4 3 3 2 2 1 1

1 ‘Held’ indicates the number of meetings held during the period that the Director was a member of the Board or Committee. 2 ‘Attended’ indicates the number of meetings attended during the period that the Director was a member of the Board or Committee. 3 Mr O’Malley was appointed as a Non-executive Director of Coles Group Limited, Chairman of the Audit and Risk Committee and a member of the Nomination Committee with effect from 1 October 2020. 4 Mr Todorcevski retired as a Non-executive Director of Coles Group Limited on 30 September 2020. Directors’ shareholdings in the Company

Details of Directors’ shareholdings in the Company as at the date of this Directors’ Report are shown in the table below. All Directors have met the minimum shareholding requirement under the Board Charter.

DIRECTOR NUMBER OF SHARES HELD1 James Graham 500,188 Steven Cain2 50,000 David Cheesewright 20,000 Jacqueline Chow 20,000 Abi Cleland 19,816 Richard Freudenstein 19,000 Paul O’Malley 3,809 Wendy Stops 25,000

1 The number of shares held refers to shares held either directly or indirectly by Directors as at 18 August 2021. Refer to the Remuneration Report tables for total shares held by Directors and their related parties directly, indirectly or beneficially as at 27 June 2021. 2 As at 18 August 2021, Steven Cain also holds 85,057 Restricted Shares, 85,057 Performance Shares, 75,866 STI Shares and 499,034 Performance Rights. Principal activities

The principal activities of Coles during the financial year were providing customers with everyday products, including fresh food, groceries, general merchandise, liquor, fuel and financial services through its store network and online platforms. No significant changes have occurred in the nature of these activities during the financial year.

State of affairs

There have been no significant changes in Coles’ state of affairs during the financial year.

Review and results of operations

A review of the operations of the Group during the financial year, the results of those operations and the Group’s financial position are contained in the Operating and Financial Review (OFR).

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Business strategies and prospects for future financial years

The OFR sets out information on the business strategies and prospects for future financial years and refers to likely developments in Coles’ operations and the expected results of those operations in future financial years. Information in the OFR is provided to enable shareholders to make an informed assessment about the business strategies and prospects for future financial years of the Group.

Information that could give rise to any likely material detriment to the Group, for example, information that is commercially sensitive, confidential or could give a third party a commercial advantage, has not been included. Other than the information set out in the OFR, information about other likely developments in the Group’s operations and the expected results of these operations in future financial years

has not been included. Overview

Events after the reporting date

On 18 August 2021, the Directors determined a final dividend of 28.0 cents per fully paid ordinary share to be paid on 28 September 2021, fully franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paid out of profits, but not recognised as a liability Operating and Financial Review Financial and Operating at 27 June 2021, is expected to be $374 million.

Dividends

Dividends since Coles’ last Annual Report:

TOTAL AMOUNT FRANKED TYPE CENTS PER SHARE $M PERCENTAGE DATE OF PAYMENT Paid during the year 2020 final dividend 27.5 367 100% 29 September 2020 2021 interim dividend 33.0 440 100% 26 March 2021 Directors’ Report To be paid after end of year 2021 final dividend 28.0 374* 100% 28 September 2021

DEALT WITH IN THE FINANCIAL REPORT AS NOTE $M Dividends paid 3.3 807

* Estimated final dividend payable, subject to variations in the number of shares up to the record date. Remuneration Report Remuneration Environmental regulations

The activities of the Company are subject to a range of environmental regulations under the law of the Commonwealth of Australia and its states and territories. The Group is also subject to various state and local government food licensing requirements, and may be subject to environmental and town-planning regulations.

The Group has not incurred any significant liabilities under any environmental legislation during the financial year.

Indemnification and insurance of officers Financial Report Financial

The Company’s Constitution requires the Company to indemnify any person who is, or has been, an officer of the Company, including the Directors, the Company Secretary and other executive officers, against the liabilities incurred while acting as such officers to the extent permitted by law.

In accordance with the Company’s Constitution, the Company has entered into a Deed of Indemnity, Insurance and Access with each of the Company’s Directors, Company Secretary, Chief Financial Officer and certain executives. No Director or officer of the Company has received benefits under an indemnity from the Company during or since the end of the financial year. Shareholder Information

The Company has paid a premium in respect of a contract insuring current and former directors, company secretaries and executives of the Company and its subsidiaries against liability that they may incur as an officer of the Company or any of its subsidiaries, including liability for costs and expenses incurred by them in defending civil or criminal proceedings involving them as such officers, with certain exceptions. It is a condition of the insurance contract that no details of the premiums payable or the nature of the liabilities insured are disclosed.

Indemnification of auditors

Pursuant to the terms of engagement the Company has with its auditors, Ernst & Young (EY), the Company has agreed to indemnify EY to the extent permitted by law and professional regulations, against any losses, liabilities, costs or expenses incurred by EY where they arise out of or occur in relation to any negligent, wrongful or wilful act or omission by the Company. No payment has been made to EY by the Company pursuant to this indemnity, either during or since the end of the financial year.

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DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM Coles Group Limited 2021 Annual Report

Non-audit services and auditor’s independence

Details of the non-audit services undertaken by, and amounts paid to, EY are detailed in Note 7.3 Auditor’s remuneration to the financial statements.

The Board is satisfied that the provision of non-audit services during the year by the Auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons:

• all non-audit services provided by EY were reviewed and approved to ensure they do not impact the integrity and objectivity of the Auditor; and • the non-audit services provided did not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the Auditor’s own work, acting in a management or decision-making capacity of the Company, acting as an advocate of the Company or jointly sharing risks or rewards.

A copy of the Auditor’s Independence Declaration forms part of this report.

Proceedings on behalf of the Company

No application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of the Company, and there are no proceedings that a person has brought or intervened in on behalf of the Company under that section.

Rounding

The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the nearest one million dollars, with the Company being in a class specified in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191.

Signed on behalf of the Board in accordance with a resolution of the Directors of the Company.

James Graham AM Steven Cain Chairman Managing Director and Chief Executive Officer

18 August 2021 18 August 2021

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DRAFT 25 COL1858_AR_2021_d25a September 16, 2021 9:39 PM Coles Group Limited 2021 Annual Report

Remuneration Report Overview

Letter to shareholders from the Chair of the People and Culture Committee Operating and Financial Review Financial and Operating

Dear Shareholder,

On behalf of the Board, I am pleased to present the FY21 Remuneration Report for Coles Group Limited (‘the Company’) and its controlled entities (together, ‘Coles’, ‘Coles Group’ or ‘the Group’). The Remuneration Report provides information on the remuneration arrangements for our Key Management Personnel (‘KMP’) which include the Managing Director and Chief Executive Officer (‘Managing Director and CEO’), Other Executive KMP and Non-executive Directors of the Company.

Our vision to be the most trusted retailer in Australia and grow long-term shareholder value

Coles has continued to pursue its vision to ‘become the most trusted retailer in Australia and grow long-term shareholder value’. Directors’ Report Directors’ The Coles management team led by Managing Director and CEO, Steven Cain, has continued to deliver against the commitments made to our customers and our shareholders amid the backdrop of ongoing lockdowns, border closures, restrictions, and economic uncertainty.

Notwithstanding the challenges and opportunities presented by the COVID-19 pandemic, Coles remains on track with our ‘Winning in our second century’ strategy, with several key achievements across FY21 including:

Inspire Customers Remuneration Report • Our focus on building advocacy and trust with our customers has resulted in continued improvements in our key customer metrics across all segments; • We specifically progressed our trusted and targeted value strategy, placing a net 474 new products on everyday low prices during the year, supporting improvements in the ‘competitively priced’ customer metric;

Smarter Selling

• Our Smarter Selling transformation program has delivered benefits of approximately $300 million in FY21. Since the launch of the Smarter Selling program in FY19, in excess of $550 million of Smarter Selling benefits have been delivered and we are on track to deliver Report Financial $1 billion of benefits by the end of FY23; • Smarter Selling benefits have enabled the business to partially offset underlying inflation and strategically reinvest back into the business in areas such as customer service, eCommerce, and technology; • Our tailored store format strategy continued during the year completing 65 renewals including 10 Format A, 36 Format C and four Coles Local supermarkets; Shareholder information Win Together

• We launched our ‘Together to Zero’ and ‘Better Together’ sustainability strategy. ‘Together to Zero’ sets our ambitions across key sustainability areas of climate change, waste and hunger. ‘Better Together’ recognises that when we work together, we can make a real difference to our team, our suppliers, our customers and to the communities in which we live and work; • Our safety metrics continued to improve during the year. This was supported by the ongoing implementation of safety programs across the business, a focus on the mental health and wellbeing of our team members, and investments to keep our customers and our team members safe during COVID-19 outbreaks; • We maintained strong team member engagement, despite a small step back compared to our highest ever engagement scores achieved in FY20; and • Beyond providing our customers with confidence that we could supply essential goods during the peaks of the pandemic, we continued to support our charity partners and the communities in which we serve through organisations such as SecondBite, Foodbank, Redkite and FightMND.

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Outcomes for FY21

Company performance was strong against all financial metrics included in the Executive KMP short-term incentive (STI) balanced scorecards for FY21. Performance against each of the financial metrics exceed the targets set by the Board, noting however that Group sales revenue was positively impacted by COVID-19. Group sales revenue (adjusted retail basis) increased by 3.5% to $39,427 million, with earnings before interest and tax (EBIT) (pre AASB 16 and significant items) increasing by 8.4% to $1,504 million.

Performance was also strong against strategic and non-financial metrics, in the areas of safety, customer, Smarter Selling and transformation projects that underpin the long-term sustainability of our business. As noted above, while our team member engagement results stepped back from the record increase in 2020, we remain on track and focused on our longer-term targets to improve engagement.

For FY21, the Board considered the STI outcomes in the context of the achievements and challenges of the year that unfolded. Section 4.4 covers the achievements in more detail and includes a summary of the Board’s approach to determining the final STI payable for Executive KMP. The Board has chosen to exercise discretion to normalise the outcome against the Group sales metric in consideration of the positive impacts of COVID-19. Accordingly, performance against the Group sales metric was calculated on an underlying basis, which resulted in this metric being assessed as just above target, rather than meeting full stretch performance. This resulted in STI outcomes for the Executive KMP being between 85.3% and 91.9% of the maximum STI opportunity. Due to the strong financial discipline of management, COVID-19 cost impacts were minimised, and Group EBIT achieved stretch performance on both an actual and underlying basis. Therefore, the Board did not make any adjustments on the calculated STI outcomes with respect to the Group EBIT metric. The Board believes the final STI outcomes reflect the significant achievements delivered by management against the commitments made to shareholders and the unprecedented impact of COVID-19.

Under the remuneration framework, 50% of the Managing Director and CEO’s STI award will be deferred into equity for two years, and 25% of the Other Executive KMP STI awards will be deferred into equity for one year.

In addition to STI outcomes, the transitional LTI award granted to the Executive KMP in FY19, was tested at the end of FY21. This award had two performance metrics. The first metric was cumulative EBIT with a ROC gateway. The targets set were fully achieved, with 100% of the performance shares linked to this metric approved to vest. The second metric was relative TSR. Performance was assessed at the 72.6 percentile against the comparator group, with 95.3% of performance shares linked to this metric approved to vest. This resulted in an overall outcome of 97.6% of the FY19-21 LTI award approved to vest.

The FY19-21 LTI was a one-off award granted at the time of the demerger. Since that time, Coles has implemented a performance rights long term incentive award as detailed in the FY19 and FY20 Remuneration Reports, and as outlined in section 4.5 of this report.

Looking ahead

The Board regularly reviews the appropriateness of our remuneration and incentive frameworks and the applicable performance metrics. With respect to the FY22 STI, the Board has decided to change a strategic performance metric for the Managing Director and CEO. Whilst ‘Smarter Selling’ will remain a key metric for all Other Executive KMP, it will be replaced in the Managing Director and CEO’s balanced scorecard with a metric focused on the FY22 key deliverables critical to the successful delivery of the Ocado program.

The Board is very conscious of the extraordinary efforts made by all Coles team members during this pandemic centric year, and believes that the remuneration outcomes appropriately reflect achievements in FY21.

Richard Freudenstein Chair of the People and Culture Committee

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM Coles Group Limited 2021 Annual Report

Introduction

The Directors of Coles Group Limited (‘the Company’) present the Remuneration Report for the Company and its controlled entities (together, ‘Coles’, ‘Coles Group’ or ‘the Group’) for the financial year ended 27 June 2021 (‘FY21’). This Remuneration Report forms part of the Directors’ Report and has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) and is audited.

This Remuneration Report covers the period from 29 June 2020 to 27 June 2021.

Structure of this report

The Remuneration Report is divided into the following sections: Overview

SECTION (1) Key Management Personnel

(2) Remuneration governance Review Financial and Operating (3) Remuneration policy and structure overview (4) FY21 Executive KMP remuneration outcomes (5) FY21 Non-executive Director remuneration (6) Ordinary Shareholdings

Section 1: Key Management Personnel

The Group is required to prepare a Remuneration Report in respect of the Group’s Key Management Personnel (‘KMP’), being the people who have the authority and responsibility for planning, directing, and controlling the Group’s activities, either directly or indirectly. This includes

the Board of Directors and Executive KMP. Report Directors’

In this Remuneration Report, ‘Executive KMP’ includes the Managing Director and CEO, and all other executives considered to be KMP. References to ‘Other Executive KMP’ means the Executive KMP excluding the Managing Director and CEO.

Table 1 sets out the details of those persons who were considered KMP of the Group during FY21.

Table 1 KMP of the Group during FY21 Remuneration Report Non-executive Directors

NAME POSITION HELD1 James Graham AM Chairman and Non-executive Director David Cheesewright Non-executive Director Jacqueline Chow Non-executive Director Abi Cleland Non-executive Director Richard Freudenstein Non-executive Director Financial Report Financial Paul O’Malley2 Non-executive Director Wendy Stops Non-executive Director Zlatko Todorcevski3 Non-executive Director

1 Unless noted otherwise, all Non-executive Directors were in office during the full financial year and up to the date of this report. 2 Mr O’Malley was appointed to the Board effective 1 October 2020. 3 Mr Todorcevski retired from the Board effective 30 September 2020. Shareholder information Executive KMP

NAME POSITION HELD1 Steven Cain Managing Director and Chief Executive Officer Leah Weckert Chief Financial Officer Greg Davis Chief Executive, Commercial & Express Matthew Swindells Chief Operations Officer

1 All Executive KMP were in office during the full financial year and up to the date of this report.

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Section 2: Remuneration Governance 2.1 Governance framework

The diagram below provides an overview of the remuneration governance framework that has been established by the Group. Further information regarding the membership and meetings of the People and Culture Committee is provided in the Directors’ Report.

Remuneration consultants and external advisors

External advisors may be engaged either directly by the People and Culture Committee or through management, to provide information on remuneration related issues, including benchmarking information and market data.

During FY21 Mercer provided independent benchmarking in relation to executive remuneration to the People and Culture Committee. No remuneration recommendations were made by external consultants.

The Board The Board maintains overall accountability for oversight of the Group’s remuneration policies to make sure that they are aligned with the Group’s vision, values, strategic objectives, and risk appetite. The Board approves all remuneration and benefit arrangements as they relate to the Managing Director and CEO and executive-level direct reports to the Managing Director and CEO (‘Executive Direct Reports’), having regard to the recommendations made by the People and Culture Committee, and the remuneration arrangements for Non-executive Directors. The Board maintains absolute discretion to either positively or negatively adjust the remuneration outcomes for the Managing Director and CEO and Executive Direct Reports. The Board will use its discretion based on the provision of supporting data and their assessment of performance aligned to the Group’s values and LEaD behaviours, risk, compliance, reputational, safety and sustainability considerations as well as the quality of earnings delivered.

Shareholders and other People and Culture Committee External advisers stakeholders The role of the Committee is to assist the Board in fulfilling its The People and Culture The People and Culture responsibilities to shareholders and regulators in relation to the Committee may seek Committee may consult Group’s remuneration policies. The Committee does this by advice from independent with shareholders, proxy reviewing and making recommendations to the Board on matters remuneration consultants advisors and other relevant including (but not limited to): in determining appropriate stakeholders, in • remuneration arrangements of Non-executive Directors, the remuneration policies for determining appropriate Managing Director and CEO, and Executive Direct Reports; the Group, and specifically remuneration policies for remuneration the Group, including • the annual performance review of the Managing Director and arrangements for the remuneration CEO and Executive Direct Reports; Managing Director and arrangements for the • remuneration outcomes for the Managing Director and CEO and CEO, and Executive Direct Managing Director and Executive Direct Reports; and Reports. CEO, and Executive Direct • delegating authority for the operation and administration of all Reports. Group incentive and equity plans to management (as appropriate).

Management

Management makes recommendations, to the People and Culture Committee on matters including (but not limited to): • remuneration arrangements of Executive Direct Reports, including the establishment of any new, or amendment to the terms of any existing, incentive and equity plans; • annual performance review of Executive Direct Reports; and • changes to the Group’s remuneration policies.

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2.2 Corporate governance policies related to remuneration

To support a robust remuneration framework, the Group has a number of corporate governance policies related to remuneration, including those outlined below.

2.2.1 Securities Dealing Policy

Coles has adopted a Securities Dealing Policy that applies to all Group team members including Non-executive Directors and Executive KMP and their connected persons, as defined within the policy. This policy sets out the insider trading laws with which all Group team members must comply along with specific restrictions with which KMP must comply, including obtaining approval prior to trading in the Group’s Overview securities and not trading within blackout periods. The policy aims to protect the reputation of the Group and maintain confidence in trading in the Group’s securities. It also prohibits specific types of transactions being made which are not in accordance with market expectations or may otherwise give rise to reputational risk.

2.2.2 Minimum Shareholding Policy Operating and Financial Review Financial and Operating

To build strong alignment between KMP and shareholders, the Group has established a Minimum Shareholding Policy. The policy requires both Executive KMP and Non-executive Directors to build and maintain a significant shareholding in the Group.

Executive KMP

Each Executive KMP is required to achieve a minimum shareholding equivalent to 100% of total fixed compensation (‘TFC’) by the later of five years from the date they commence, or five years from the introduction of the policy on 1 July 2019. The details of each Executive KMP shareholding are summarised in Table 13.

In addition to Executive KMP, this policy also applies to all other Executive Direct Reports.

Non-executive Directors Report Directors’

Each Non-executive Director is required to hold at least 1,000 ordinary shares in the Company within six months of their appointment. The shares may be held by a Non-executive Director either in their own name, or indirectly in the name of either an entity controlled by the Non- executive Director or a closely related party. As at the date of this Remuneration Report, each Non-executive Director satisfies this requirement.

Within five years of appointment, each Non-executive Director is expected to increase their shareholding to an amount equivalent to 100% of their annual base fee at that time. The details of each Non-executive Director’s shareholding are summarised in Table 12. Remuneration Report Section 3: Remuneration policy and structure overview 3.1 Remuneration policy for FY21

Our remuneration framework, introduced in FY20, is aligned to our ‘Winning in Our Second Century’ strategy and is guided by our remuneration principles. It is designed to ensure remuneration at the Group is market competitive, performance-based, creates long-term value for shareholders, and is fit-for-purpose.

The People and Culture Committee believes the framework is appropriately aligned to our strategy and the interests of our shareholders. Report Financial

Market competitive Performance-based Creates long-term value for Fit-for-purpose shareholders Retail is a globally A strong link to performance- Designed to be relevant to competitive industry. based pay to support the Ensuring there is a common how the Group operates. It achievement of strategy interest between executives needs to be simple to We need to be able to aligned to short, medium and shareholders by aligning articulate, drive the right Shareholder information attract, motivate and retain and long-term financial reward to the achievement behaviours and ensure we high calibre executives in targets. of sustainable shareholder deliver on our strategy. both the local and global returns. talent market.

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3.2 Delivered through a simple, three-element structure:

Executive KMP remuneration is delivered using both fixed and variable (at-risk) components as outlined below.

Specific performance measures and outcomes for FY21 are included in section 4. Details of prior years’ remuneration, including performance measures and outcomes, are set out in the Remuneration Report contained in the relevant prior years’ Annual Reports, which are available on our website.

Fixed elements Variable elements

Total Fixed Short-term incentive (STI) Long-term incentive (LTI) Compensation (TFC)

How it is Cash Cash Equity (Shares) Equity (Performance Rights) delivered

How it works • consists of base • paid as part cash, part deferred equity • delivered in Performance Rights, subject salary and = Managing Director and CEO 50% deferred into to a 3-year Performance Period superannuation shares and restricted for 2 years • opportunity levels: = Other Executive KMP 25% deferred into shares • target position is = Managing Director and CEO 175% of TFC and restricted for 1 year the 50th percentile = Other Executive KMP 150% of TFC of the ASX 10-40 • opportunity levels (all Executive KMP): • measured against: comparator group = 80% of TFC at Target = 50% Relative TSR (RTSR) (plus reference to = 120% of TFC at Maximum (ASX 100 comparator group) local and • measured against an individual balanced = 50% cumulative Return on Capital (ROC) international scorecard consisting of: retailers, as • dividend equivalent payment made in = 60% financial measures required) shares upon vesting = 40% strategic and non-financial measures • includes a mixture of group and functional strategic measures

What it does Allows us to attract Incentivises strong individual and Company Aligns reward with creation of and retain key talent performance, based on strategically aligned sustainable, long-term shareholder value through competitive deliverables, through variable, at-risk and fair fixed payments remuneration

The graphic below demonstrates the award delivery time horizons which continue to apply in FY21.

Performance period (1 year) TFC Salary paid during the year

Performance period (1 year)

1-year vesting period Other Executive KMP – 75% paid in cash

Other Executive KMP – 25% deferred into Shares held in restriction for 1 year STI

2-year vesting period MD & CEO – 50% paid in cash

MD & CEO – 50% deferred into Shares held in restriction for 2 years

Performance period (3 years) LTI

Performance Rights vest subject to performance hurdles being met

Financial Year 1 Financial Year 2 Financial Year 3 Financial Year 4

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3.3 FY21 target remuneration mix for Executive KMP

The FY21 remuneration mix at target for the Executive KMP is outlined below:

Chart 1

Managing Director and CEO Other Executive KMP

TFC TFC Overview 28% 30% STI Cash STI Cash 50% 46% STI Equity STI Equity

11% LTI LTI 18% Review Financial and Operating 11% 6%

3.4 Executive KMP service agreements

The terms of employment for the Executive KMP are formalised in employment contracts that have no fixed term. Specific information relating to the terms of the Executive KMP’s employment contracts is set out in Table 2.

Table 2 Executive KMP employment contracts

NAME NOTICE PERIOD1 RESTRAINT OF TRADE Steven Cain 12 months 12 months Report Directors’ Leah Weckert 12 months 12 months Greg Davis 6 months 6 months Matthew Swindells 6 months 6 months

1 Executive KMP can be terminated without notice if they are found to have engaged in serious or wilful misconduct, are seriously negligent in the performance of their duties, commit a serious or persistent breach of their employment contract, or commit an act, whether at work or otherwise, that would bring the Group into disrepute. The Group may also make a payment in lieu of notice. Remuneration Report Section 4: FY21 Executive KMP remuneration outcomes 4.1 Company performance

This section of the report provides an overview of how the Company’s performance for FY21 has driven remuneration outcomes for our Executive KMP.

The remuneration framework at the Group has been designed to reward Executive KMP for their contribution to the collective performance of the Company and to support the alignment between the remuneration of Executive KMP and shareholder returns. Financial Report Financial

Table 3 summarises key indicators of Company performance and relevant shareholder returns over FY21.

As the Group listed on the ASX on 21 November 2018, it is not possible to address the statutory requirement that the Group provides a five- year discussion of the link between performance and remuneration. This table will continue to be expanded each year in order to provide the required comparative metrics for the financial years in which the Group was listed. Shareholder information

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Table 3 Key Company performance indicators

YEAR ENDED YEAR ENDED YEAR ENDED FINANCIAL SUMMARY 27 JUNE 2021 28 JUNE 2020 30 JUNE 2019 Group Earnings Before Interest and Tax (EBIT) $1,873m $1,762m $1,467m Group EBIT (pre-AASB16 and significant items) $1,504m $1,387m $1,343m Group Sales Revenue1 $38,562m $37,408m $35,001m Group Sales Revenue (adjusted retail basis)2 $39,427m $38,109m $35,741m Coles Online Sales (retail basis) $1,975m $1,301m $1,101m Return on capital (ROC)3 16.0% 15.2% n/a ROC (pre-AASB16 and significant items)3 39.1% 35.2% 32.9% Dividends paid per ordinary share during the financial year (cents)4 60.5 65.5 - Dividends determined in respect of the financial year (cents)5 61.0 57.5 35.5 Closing share price (as at end of financial year)6 $16.83 $16.79 $13.35 Total shareholder return (TSR) (%)7 3.9% 31.7% 6.9%

1 Retail sales reflect the retail calendar period and from FY19 exclude Fuel sales and Hotels sales. Fuel sales have been removed as the Group now recognises commission income following commencement of the New Alliance Agreement in March 2019; Hotels sales have been removed to reflect no economic interest in this business since April 2019. 2 Retail sales adjusted to include concession sales and remove flybuys costs. 3 ROC is Group EBIT divided by capital employed. Capital employed is calculated on a rolling average basis (seven months in FY19). 4 The dividends paid per ordinary share reflect the dividends shareholders received within each financial period. Dividends paid within each financial year does not reflect the dividends determined for the same financial year due to the dividend payment date. The Dividends paid in FY20 includes the special dividend of 11.5 cents per share determined by Directors in FY19. The final dividend determined by Directors for FY21 was 28.0 cents per share to be paid on 28 September 2021 (FY22). 5 The dividends determined in respect of the financial year reflect the dividends determined for the financial year irrespective of the dividend payment date. 6 The opening share price on listing on the ASX on 21 November 2018 was $12.49. 7 TSR is calculated as the change in share price during the financial year, plus dividends reinvested on the respective ex-dividend dates. 4.2 Board oversight of remuneration outcomes

The Board maintains absolute discretion to ensure that remuneration outcomes are appropriate in the context of the Company’s performance, our customer experience and shareholder expectations. The Board has discretion in evaluating the achievement against performance measures, including to adjust for unusual factors. The steps undertaken by the Board to inform their decisions with respect to remuneration outcomes for FY21 are further outlined in sections 4.3 to 4.5.

4.3 Total fixed compensation (TFC)

TFC is designed to be competitive to attract, motivate and retain the right talent. The TFC for Executive KMP is compared to the ASX 10-40 (based on market capitalisation) benchmark group, as well as both local and international retailers, and targeted at the 50th percentile of this peer group for comparable roles. This approach to benchmarking has remained unchanged since FY19.

At the start of FY21, the Board conducted a review of Executive KMP TFC and total remuneration packages against the comparator group. This was informed by a detailed benchmarking exercise conducted by Mercer. Considering the review outcomes, the Board determined that it was appropriate to award an increase in TFC to Mr Swindells, effective from 1 October 2020. This increase was reflective of Mr Swindells’ relative market positioning in the benchmarking peer group and his performance since becoming Chief Operating Officer at the start of FY20. There were no other TFC increases for Executive KMP in FY21.

A review of fixed remuneration will be conducted in FY22 in line with our remuneration principles. Any approved changes will be disclosed in our FY22 Remuneration Report.

4.4 Short-term incentive (STI)

The Group’s STI rewards Executive KMP for the achievement of key short-term performance measures.

The FY21 STI payable for the Executive KMP was assessed against individual balanced scorecards consisting of Financial, Strategic and Non- financial metrics. Financial metrics were set on a pre AASB16 basis for FY21. The scorecards also include a mix of group and functional Strategic metrics. The balanced scorecard approach for Executive KMP provides a simple and transparent approach to highlighting performance priorities, measuring performance outcomes against each weighted metric, and provides clarity regarding the connection between the performance assessment and reward outcomes.

The scorecards also include a ‘Quality and Behaviour’ overlay which considers:

• how the Executive KMP achieved performance aligned to the Group’s values and LEaD behaviours; • risk, compliance, and reputational matters; and • the quality of earnings delivered.

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The Executive KMP have a maximum STI opportunity equivalent to 150% of target (80% of TFC at target and 120% of TFC at maximum). The FY21 Group Financial performance measures contribute up to 110% of the target STI opportunity for all Executive KMP (60% at target). The Strategic and Non-financial measures contribute up to 40% of the target STI opportunity for all Executive KMP.

Details of the Managing Director and CEO’s calculated balanced scorecard for FY21 are set out in Tables 4 and 5 below.

Table 4 FY21 Financial Performance Measures for the Managing Director and CEO

FY21 FY21 TARGET MAXIMUM ACTUAL STI 1

MEASURE TARGET ACTUAL ACHIEVEMENT WEIGHTING WEIGHTING OUTCOME Overview Group EBIT $1,415m $1,504m Above Stretch 35% 70% 70% Group Sales $38,446m $39,427m Above Stretch 15% 30% 30% Coles Online Sales $1,724m $1,975m Above Target 10% 10% 10% OVERALL PERFORMANCE 60% 110% 110% Operating and Financial Review Financial and Operating

1 Other Executive KMP share the same financial measures as the Managing Director and CEO, except for Ms Weckert who has a Group Cash Realisation metric instead of an Online Sales metric. The Group Cash Realisation metric was achieved in full for FY21.

Further details regarding each financial performance measure in Table 4 is provided as follows:

Group EBIT (pre AASB 16 and significant items): Smarter Selling benefits and operating leverage have driven growth across all segments, despite incurring approximately $130 million of COVID-19 costs during the year.

Group Sales (adjusted retail basis): Supermarkets, Liquor and Express experienced sales growth despite cycling elevated sales in the prior corresponding period due to the onset of COVID-19 and the subsequent national lockdown. Growth was driven by strategic initiatives that resonated with customers, including customers who were spending more time living and working at home due to COVID-19.

Coles Online Sales: Performance was driven by investment in strategic initiatives including increasing capacity, improving customer fulfilment Report Directors’ options through Next Day, Same Day, and Immediacy, rolling out Coles Click & Collect Rapid and extending our Direct to Boot service.

Table 5 FY21 Strategic and Non-Financial Measures for the Managing Director and CEO

TARGET/ MAX ACTUAL STI MEASURE1 WEIGHTING OUTCOME PERFORMANCE

Strategy – Smarter Selling 10% 10% Cost savings of approximately $300 million were achieved in FY21 Remuneration Report through Smarter Selling initiatives. These initiatives led to improvements in store level planning, information flow and decision-making, reduced manual handling, improved availability for customers, reduced loss, and optimised markdowns. Transport and logistics solutions also improved the end-to-end flow of fresh goods and unlocked significant benefits through the network.

Safety – TRIFR 10% 10% Team member safety significantly improved across FY21 with the Report Financial Total Recordable Injury Frequency Rate improving by 15.7%. People – mysay engagement score 10% 0% Team member engagement remained strong despite a small step back (-3pp) compared to our highest ever engagement scores achieved in FY20 (+7pp). Customer – 10% 10% NPS improved by 2.3 points on FY20, and was ahead of target, Net Promoter Score (NPS) lifting customer perception scores across the key pillars of value, Shareholder information Coles Supermarkets quality, in-store experience, service, and reputation. OVERALL PERFORMANCE 40% 30%

1 Strategic and Non-financial measures for Other Executive KMP are aligned to the Managing Director and CEO with variations relevant to their portfolio. For FY21, achievement against this component for Other Executive KMP ranged from partially achievement to full achievement.

At the conclusion of FY21, the Board assessed the performance against the calculated balanced scorecards of the Managing Director and CEO and the Other Executive KMP to determine any STI award payable. The Board also considered the appropriate application of the ‘Quality and Behaviour’ overlay to determine the final Executive KMP STI outcomes for FY21 as detailed in Table 6.

In its assessment, the Board considered the STI outcomes in the context of the achievements and challenges of the year that unfolded. Following that assessment, the Board chose to exercise discretion to normalise the outcome against the Group Sales metric in consideration of the positive impacts of COVID-19. Subsequently, performance against this metric was re-calculated on an underlying basis, which resulted in an outcome just above target, rather than meeting full stretch performance as shown in Table 4. During this review the Board also considered underlying Group EBIT performance. Due to the strong financial discipline of management, COVID cost impacts were minimised,

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Table 6 FY21 Executive KMP STI Outcomes

Details of the Executive KMP STI opportunity and actual payments received for FY21 are provided in Table 6.

STI OPPORTUNITY STI (% OF TFC)1 STI AWARDED FORFEITED4 NAME TARGET MAXIMUM $ % OF TFC CASH2 EQUITY3 (%) Steven Cain 80% 120% $2,148,300 102.3% $1,074,150 $1,074,150 14.8% Leah Weckert 80% 120% $1,047,850 110.3% $785,887 $261,963 8.1% Greg Davis 80% 120% $937,125 107.1% $702,844 $234,281 10.8% Matthew Swindells 80% 120% $883,150 103.9% $662,362 $220,788 13.4%

1 The minimum STI opportunity was nil. 2 The FY21 cash component of the STI will be paid on or about 15 September 2021. 3 The FY21 equity component of the STI will be granted in STI Shares following the Coles 2021 AGM, using a 10-day Volume Weighted Average Price (VWAP) for the period up to and including 27 June 2021, of $16.65. Equity for the Managing Director and CEO will not be granted unless shareholder approval is obtained at the Coles 2021 AGM. 4 As a percentage of STI Maximum Opportunity.

Other Terms of the FY21 Short-term incentive (STI)

What was the Performance Period? 29 June 2020 – 27 June 2021 Why were the performance conditions chosen? The Financial measures align with the Company’s strategy and the commitments made to shareholders. In particular, Group EBIT focuses on delivering strong earnings through the business cycle and ensuring strong returns for shareholders. Including sales metrics as well as Group EBIT ensures a strong focus upon our capability to deliver sustainable returns for shareholders in the long-term.

For FY21, the Board introduced a Coles Online Sales (Financial) metric, replacing the Group Cash Realisation (Financial) metric from FY20. The exception is Ms Weckert who retained the Group Cash Realisation (Financial) metric. This change demonstrated the importance of Online channel growth in our strategy.

Strategic and non-financial metrics align to all three pillars of the Coles strategy to ‘Inspire Customers’, ‘Win Together’, and streamline our business through ‘Smarter Selling’.

In FY21, the Customer metric was adapted from a blended approach to a single Net Promoter Score (NPS) metric. This simplified the measurement and highlighted the importance of going beyond satisfying our customers to recruiting them as advocates for our business How were the conditions assessed? Performance against the balanced scorecard metrics was assessed by the Board based on the Company’s annual audited results, financial statements and other data provided to the Board.

This method was adopted as the Board believes it is the most appropriate way to assess the true performance of the Company and the Executive KMP’s contribution to determine remuneration outcomes. What portion of the STI component was deferred into equity? As detailed in Table 6, once the individual scorecard calculation has been completed, the total STI award is determined. The equity deferred amount is then determined by reference to 50% of the total STI award for the Managing Director and CEO, and 25% of the total STI award for the Other Executive KMP.

This amount is then used to determine the number of STI Shares that will be granted and subject to deferral. This is calculated using the 10-day VWAP up to and including the final day in the performance period (i.e. 27 June 2021).

The shares are granted following the payment of the cash component of the STI award and are unable to be traded during the restricted period, being one year for the Other Executive KMP and two years for the Managing Director and CEO. Once the restricted period ends, the restriction is lifted and the Executive KMP may trade these shares in accordance with Coles’ Securities Dealing Policy. When will the FY21 STI award be paid? The cash component of the STI award will be paid in September 2021.

The STI equity component will be allocated following the Coles 2021 AGM, where shareholder approval will be sought for the grant to the Managing Director and CEO.

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What happens if an Executive KMP leaves the organisation prior to payment? In the event of resignation or dismissal for cause or significant underperformance prior to payment of the STI, an Executive KMP would not be eligible for any STI award. What happens if an Executive KMP leaves the organisation before STI equity vests? During the restricted period, if an Executive KMP leaves the organisation in the event of resignation or dismissal for cause or significant underperformance, all shares will be forfeited, unless the Board determines otherwise.

In any other circumstances (including by reason of redundancy, permanent disability, death, or ill health) the shares will continue on foot until the usual vesting date, unless the Board determines otherwise. Overview Can the Board amend the STI program? The Board retains discretion to suspend or terminate the program at any time or amend all or any elements of the program up until the date of payment.

4.5 Long-term incentive (LTI) Review Financial and Operating

The LTI rewards Executive KMP for the achievement of long-term sustainable returns for shareholders.

As outlined in section 3.2, for FY21 the LTI component of Executive KMP remuneration was delivered in Performance Rights. The Performance Period for the FY21 LTI runs from 29 June 2020 to 25 June 2023 (retail year end for FY23).

Performance Rights will vest subject to the satisfaction of the following performance conditions measured over the Performance Period:

• 50% of Performance Rights are subject to a cumulative return on capital (‘ROC’) hurdle (‘ROC component’); and • 50% of Performance Rights are subject to a relative total shareholder return (‘RTSR’) performance hurdle. Coles’ RTSR will be compared to companies in the S&P ASX100 (‘Comparator Group’) as at 28 June 2020.

These performance conditions were chosen because they provide a direct link between Executive KMP reward and sustained shareholder Report Directors’ returns, to promote further alignment with shareholders.

4.5.1 ROC component

Vesting of the Performance Rights in the ROC component is subject to achievement of at least 95% of the cumulative ROC target over the Performance Period.

Cumulative ROC measures the Company’s average annual return on capital over the Performance Period against targets set by the Board. Remuneration Report Cumulative ROC is calculated based on the Company’s audited financial information. The Board will assess Cumulative ROC after the end of the Performance Period.

In assessing achievement against the Cumulative ROC performance condition, the Board may have regard to any matters that it considers relevant and retains discretion to review outcomes to ensure that the results are appropriate.

The number of Performance Rights in the ROC component that vest, if any, will then be based on the Group’s cumulative ROC performance determined over the Performance Period by reference to the following vesting schedule: Financial Report Financial

GROUP CUMULATIVE ROC OVER THE PERFORMANCE PERIOD % OF PERFORMANCE RIGHTS THAT VEST Equal to or below 95% of the cumulative ROC target is achieved 0% Between 95% and 105% of the cumulative ROC target is achieved Straight-line pro rata vesting between 0% – 100% Equal to 105% or above of the cumulative ROC target is achieved 100%

The ROC targets are considered by Coles to be commercially sensitive. However, the Board will disclose the relevant vesting outcomes Shareholder information following the end of the Performance Period.

4.5.2 RTSR component

The number of Performance Rights in the RTSR component that vest, if any, will be based on Coles’ RTSR ranking within the Comparator Group over the Performance Period, as set out in the following vesting schedule:

COLES RTSR RANK IN THE COMPARATOR GROUP % OF PERFORMANCE RIGHTS THAT VEST Below the 50th percentile 0% Equal to the 50th percentile 50% Between 50th percentile and 75th percentile Straight-line pro rata vesting between 50% – 100% Equal to the 75th percentile or above 100%

Following testing, any Performance Rights that do not vest will lapse. There is no re-testing of awards.

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4.5.3 FY21 LTI outcomes

Performance Rights granted under the FY21 LTI will be tested following the end of FY23 (the end of the Performance Period). Details of the number of Performance Rights granted under the FY21 LTI are included in section 4.7. Details of equity awards granted to Executive KMP in prior years (including applicable performance conditions and vesting dates) have been previously disclosed in the FY19 and FY20 Remuneration Report.

Other Terms of the FY21 Long-term incentive (LTI)

How was the LTI award delivered? The LTI award was delivered in Performance Rights. Each Performance Right entitles the Executive KMP to one ordinary share in the Company on vesting. The Board retains a discretion to make a cash equivalent payment in lieu of an allocation of shares.

Performance Rights vest subject to achievement of relevant performance conditions and were allocated to Executive KMP at no cost to the Executive KMP, and no amount is payable on vesting. When were Performance Rights allocated? The Performance Rights for all Executive KMP under the FY21 Long Term Incentive plan were granted on 23 November 2020, following the Coles 2020 AGM (at which the grant made to the Managing Director and CEO was approved for the purposes of ASX Listing Rule 10.14 and details of which are published in this FY21 Remuneration Report). How were Performance Rights allocated? The number of Performance Rights allocated to the Executive KMP was determined by dividing each Executive KMP’s LTI opportunity by the VWAP of Coles shares trading on the ASX over the 10 trading days up to and including 28 June 2020, rounded up to the nearest whole number. How are the performance conditions assessed? RTSR performance is independently assessed each year of the Performance Period against the constituents of the Comparator Group. ROC is calculated using Coles’ audited financial results.

These assessment methods are designed to safeguard the integrity of the performance assessment process and ensure the accuracy of underlying information. When does vesting occur? Following testing, the Board will determine the number of Performance Rights to vest, which is expected to occur in late August 2023. Details regarding the vesting of the Performance Rights will be included in the FY23 Remuneration Report.

If the anticipated vesting date falls within a Blackout Period (as defined within the Company’s Securities Dealing Policy), vesting will be delayed until the end of that period.

Following testing, any Performance Rights that do not vest will lapse. No retesting of the performance conditions is permitted. What happens if an Executive KMP ceases employment? In the event of resignation or dismissal for cause or significant underperformance, all unvested Performance Rights will lapse, unless the Board determines otherwise.

In any other circumstances (including by reason of redundancy, permanent disability, death, or ill health), a pro rata number of Performance Rights (based on the proportion of the Performance Period that has been served) will remain on foot and subject to the original terms of offer, as though the Executive KMP had not ceased employment, unless the Board determines otherwise. Do Performance Rights have voting rights? No. Prior to vesting, Performance Rights do not entitle Executive KMP to voting rights. Are dividends paid on Performance Rights? Executive KMP do not have an entitlement to dividends prior to vesting.

After testing against the performance conditions, Executive KMP will receive a dividend equivalent amount related to the vested Performance Rights only. The dividend equivalent amount will be delivered in additional shares, equal in value to the value of dividends that would have been paid on the vested rights had the Executive KMP been the owner of Coles shares during the period from the Performance Rights grant date to the vesting date. There is no dividend payable on any Performance Rights that do not vest.

The Board retains a discretion to settle the dividend equivalent amount in cash. How can the Board apply discretion to clawback outcomes? The Board has broad clawback powers to determine that any Performance Rights may lapse, any shares allocated on vesting are forfeited, or that the Executive KMP is required to pay as a debt the net proceeds of the sale of shares or dividends in certain circumstances (for example the Executive KMP has acted fraudulently or dishonestly, has engaged in gross misconduct, brought the Group into disrepute, or breached their obligations to the Group).

This protects Coles against the payment of benefits where participants have acted inappropriately.

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What happens if there is a change of control? Under the Offer terms, the Board may determine in its absolute discretion that some or all the Executive KMP’s Performance Rights will vest or cease to be subject to restrictions on a likely change of control.

Where there is an actual change in control of the Company then, unless the Board determines otherwise, unvested Performance Rights will vest on a pro rata basis (based on the proportion of the Performance Period that has elapsed). What restrictions are there on dealing in the Performance Rights? Executive KMP must not sell, transfer, encumber, hedge, or otherwise deal with Performance Rights. Executive KMP will be free to deal with the shares allocated on vesting of the Performance Rights, subject to the requirements of Coles’ Securities Dealing Policy. Overview 4.5.4 LTI Test at the end of FY21 - FY19 LTI vesting outcome

In FY19, Executive KMP were invited to participate in the first LTI award for the Group. Full details relating to this LTI award are detailed in the FY19 Remuneration Report. This award included the provision of Performance Shares, granted on 19 November 2019, as part of a transitional remuneration structure put in place for Executive KMP following the demerger from Wesfarmers. The performance period for this award was Review Financial and Operating 21 November 2018 to 27 June 2021.

Performance Shares were subject to two performance conditions (as well as a service condition):

• 50% - cumulative EBIT hurdle with a ROC gateway over the period 21 November 2018 and 27 June 2021; and • 50% - RTSR hurdle, measured from 20 February 2019 (the day after the FY19 half-year results announcement) to 27 June 2021, compared against companies in the Comparator Group.

Table 7 Testing of performance hurdles

Following the testing of each performance hurdle, the following vesting will occur on 25 August 2021 in relation to the FY19 LTI award and will be reported in the FY22 Remuneration Report: Report Directors’

GATEWAY TARGET MAX WEIGHTING MET 50% vest 100% vest RESULT % VEST Gateway Cumulative EBIT with ROC gateway 50% YES 90% of target 100% of target Met & 102.5% 100% RTSR 50% N/A 50th percentile 75th percentile 72.6 percentile 95.3% Remuneration Report Overall vesting 100% 97.6%

Further details regarding each performance hurdle in Table 7 is provided as follows:

Cumulative EBIT with ROC gateway: The ROC gateway and EBIT target were met in full and resulted in 100% of this component of the LTI vesting.

RTSR: The Company performed at the 72.6 percentile against the Comparator Group and so vested to 95.3%.

Based on the calculated performance, overall vesting outcome of 97.6% was achieved. The Board reviewed the vesting outcomes for each Report Financial metric, considered the Company’s strong performance over the period, including returns to shareholders, and believes that the vesting outcomes are appropriate in this context. Shareholder information

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM Coles Group Limited 2021 Annual Report TOTAL $2,711,751 $6,965,079 $2,872,331 $2,833,975 $6,695,594 $3,150,099 $2,650,522 $2,355,277 $15,391,419 $14,843,209 COMPENSATION 2 SHARES $612,703 $576,758 $487,522 $636,941 $469,052 $516,304 $963,545 $1,313,004 $2,700,711 $2,875,118 RIGHTS $710,018 $377,632 $667,645 $413,035 $770,050 $448,433 $2,047,926 $1,156,486 $4,195,639 $2,395,586 PERFORMANCE VALUE OF SHARE- BASED PAYMENTS

POST- $21,694 $21,694 $21,694 $21,694 $21,003 $21,003 $21,003 $21,003 SUPER- $86,776 $84,012 BENEFITS ANNUATION ANNUATION EMPLOYMENT

LEAVE ($6,228) ($6,228) ($5,678) $26,144 $73,642 $28,030 $65,904 ($19,366) $157,917 $325,493 ACCRUED BENEFITS LONG-TERM $721,875 $709,200 $785,888 $702,844 $662,363 $855,000 CASH STI $1,074,150 $1,249,500 $3,535,575 $3,225,245

1 $1,074 $1,765 $1,779 $1,499 $2,597 $1,323 $1,549 $7,424 OTHER $1,501,776 BENEFITS $1,505,938 SHORT-TERM

BASE SALARY $765,074 $928,997 $853,997 $815,806 $928,306 $853,306 $2,078,997 $2,078,306 $4,627,065 $4,675,724 2020 2020 2020 2020 2021 2021 2021 2021 YEAR 3 3 4 3 Ms Weckert – 10,895 Restricted Shares, which vested in full Mr Davis – 7,627 Restricted Shares, which vested in full, and 7,627 Performance Shares, which were subject to testing. 2,589 Performance Shares vested (5,038 Performance Shares were forfeited). Other benefits include costs associated with employment (including any applicable fringe benefits tax). Mr Cain’s 2020 value includes $1,500,000 paid on 27 December 2019 in line with the transition award put in place by WesfarmersThe figures in this to column compensate for share-based Mr Cain for short-term payments and represent long-term incentives share-based that awards that are not yet vested in favour of the Executive KMP in the financial period presented. The amounts represent the accounting fair value of the grants of Performance Rights, Restricted Shares, Performance Shares, and Ms Weckert and Mr Davis participated in the 2015, and 2016 Wesfarmers 2017 Employee Share Acquisition Plan (WESAP). Mr SwindellsDuring participated FY20, Ms Weckert in the WESAP. The 2017 and 2015 Mr WESAP Davis held vested the following in November under the 2018 and WESAP, 2016 details which were on subject this award were to vesting provided (and testing in the FY19 for Performance• and FY20 Remuneration Shares) in November Reports. 2019: • Ms Weckert, Mr Davis, and Mr Swindells held 6,962 Restricted Shares and 6,962 Performance Shares under the WESAP 2017 during both FY20 and FY21. These awards were subject to vesting (and testing for PerformanceThere are Shares) no further in December WESAP 2020 (during awards FY21). that remain The on Restricted foot. Shares vested in full, and Comparative information has been reclassified where required for consistency with the current period’s presentation. were forfeited or forgone with his prior employer, due to his acceptance of the role with Coles. Full details relating to this payment are provided in section of 4.7 the FY20 Remuneration Report. STI Shares recognised in the income statement during the year. It also includes legacy Wesfarmers share awardsmembers allocated and are to Ms being Weckert, expensed Mr Davis, over and the Mr Swindells relevant prior performance to the demerger period. pursuant In accordance to Wesfarmers with the share accounting plans,conditions standards which Ms Weckert, and the performance accounting Mr Davis fair and Mr periods. value Swindells of the grants received If the performance is recognised as Wesfarmers conditions proportionally team are not met, over the the Executive grant’s performance KMP will not be entitled period. to the Refer shares. to section 4.5 for further details for the grants, their performance 5,923 Performance Shares vested (1,039 Performance Shares were forfeited). 4.6 Summary remuneration of received Executive by KMP (statutory remuneration) 8 details theTable nature and amount of each element of remuneration of the Executive There were no transactions KMP. or loans between Executive KMP and the Company or any of its subsidiaries during FY21. 8 ExecutiveTable KMP remuneration NAME Current Executive KMP Steven Cain WeckertLeah Greg Davis Matthew Swindells TOTAL 2021 2020 TOTAL 1 2 3 4

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4.7 Summary of Executive KMP shareholding and Performance Rights

Table 9.1 and 9.2 show the movements of Coles Performance Rights, Restricted Shares, Performance Shares and STI Shares, held beneficially, by each Executive KMP during FY21. No other shares were acquired as remuneration during the year. Details of Executive KMP’s holdings of ordinary shares are provided in Table 13.

Table 9.1 Restricted, Performance and STI Shares

ADDITIONAL

MOVEMENTS DURING THE FINANCIAL PERIOD INFORMATION Overview VESTED/ ACCOUNTING BALANCE OF GRANTED RELEASED FORFEITED CLOSING FAIR VALUE OF SHARES HELD AT DURING DURING DURING BALANCE AT GRANT YET TO 6 1

NAME SHARE TYPE 29 JUNE 2020 THE YEAR THE YEAR THE YEAR 27 JUNE 2021 VEST ($) Review Financial and Operating Steven Cain Restricted Shares3 85,057 - - - 85,057 $881,191 Performance Shares2 85,057 - - - 85,057 $696,617 STI Shares5 - 75,866 - - 75,866 $1,385,313 Leah Weckert Restricted Shares3 50,3774 - (13,924) - 36,453 $377,653 Performance Shares2 36,453 - - - 36,453 $298,550 STI Report Directors’ Shares5 - 17,305 - - 17,305 $310,625 Greg Davis Restricted Shares3 46,3264 - (13,924) - 32,402 $335,685 Performance Shares2 32,402 - - - 32,402 $265,372 STI Remuneration Report Shares5 - 14,610 - - 14,610 $262,250 Matthew Swindells Restricted Shares3 40,2514 - (13,924) - 26,327 $272,748 Performance Shares2 26,327 - - - 26,327 $215,621 STI Shares5 - 14,354 - - 14,354 $257,654

1 The fair value of STI Shares for Mr Cain was $18.26 at the grant date of 5 November 2020.The fair value of STI Shares at the grant date of 23 November 2020 was $17.95 for Other Executive KMP. The fair Report Financial value of Restricted Shares, Performance Shares and STI Shares is an estimate of the total maximum value of grants in future financial years. Restricted Shares, Performance Shares and STI Shares are subject to the satisfaction of conditions and therefore the minimum total value of the awards for future financial years is nil. The accounting fair value does not include those detailed in footnote 4 (shares acquired through demerger as a result of WESAP holdings). 2 Performance Shares totals relate to shares allocated under the FY19 LTI award. Performance Shares vest based on the achievement of performance conditions aligned to RTSR and cumulative EBIT with a ROC gateway. This award was tested following the end of the performance period, with Performance Shares to vest in accordance with Table 7 on 25 August 2021. Full details regarding this award are detailed in the FY19 Remuneration Report and vesting outcomes will be reported in the FY22 Remuneration Report. 3 The Restricted Shares total include shares allocated under the FY19 Executive Restricted Share (ERS) offer. Restricted shares are time based only and full details of this award are detailed in the FY19 Remuneration Report.

4 The opening balance of Restricted Shares for the Other Executive KMP includes Coles shares acquired through demerger as a result of their holding of WESAP shares, as detailed in Table 8. These Shareholder information shares are only subject to a holding lock while the Other Executive KMP remain employed by Coles, or until the date the WESAP award that these Coles shares were allocated as a result of, vest (whichever is the earlier). During the year Ms Weckert, Mr Davis, and Mr Swindells each had 13,924 shares released. On release, the holding lock is removed. As at 27 June 2021, none of the Executive KMP continue to hold shares linked to the 2017 WESAP. 5 STI Shares are time based only. 6 No Restricted, Performance or STI Shares were held nominally by the Executive KMP or their related parties as at 27 June 2021.

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Table 9.2 Performance Rights

ADDITIONAL MOVEMENTS DURING THE FINANCIAL PERIOD INFORMATION ACCOUNTING BALANCE OF RIGHTS RIGHTS VESTED/ CLOSING FAIR VALUE OF RIGHTS HELD AT ALLOCATED AS LAPSED DURING BALANCE AT GRANT YET TO NAME 29 JUNE 2020 REMUNERATION THE YEAR 27 JUNE 2021 VEST ($)1 Steven Cain 275,901 223,1332 - 499,034 $6,485,100 Leah Weckert 106,982 86,521 - 193,503 $2,441,087 Greg Davis 98,537 79,691 - 178,228 $2,248,391 Matthew Swindells 90,091 77,414 - 167,505 $2,113,345

1 The fair value of Performance Rights is an estimate of the total maximum value of grants in future financial years. The fair value of Mr Cain’s FY21 Performance Rights at the grant date of 5 November 2020 was $10.57 for the RTSR component and $16.46 for the ROC component. The fair value of the Other Executive KMP’s FY21 Performance Rights at the grant date of 23 November 2020 was $9.12 for the RTSR component and $16.21 for the ROC component. 2 Approval from shareholders for the issue of these Performance Rights to Mr Cain was obtained for the purpose of ASX Listing Rule 10.14 at the Coles 2020 AGM. Section 5: FY21 Non-executive Director remuneration 5.1 Non-executive Director remuneration framework

Non-executive Director remuneration is designed to ensure that the Company can attract and retain suitably qualified and experienced Non- executive Directors.

Non-executive Directors receive a base fee for their service as a director of the Company, and other than the Chairman, an additional fee for membership of, or for chairing a Board committee. To maintain the independence of directors, Non-executive Directors do not receive shares or any performance-related incentives as part of their remuneration from the Company. A minimum shareholding policy applies to Non- executive Directors (see section 2.2.2).

Non-executive Directors are reimbursed for travel and other expenses reasonably incurred when attending meetings of the Board or conducting the business of the Company.

The People and Culture Committee reviews and makes recommendations to the Board with respect to Non-executive Directors’ fees and Board committee fees.

5.2 Current Non-executive Director remuneration policy

The Non-executive Director remuneration policy enables the Company to attract and retain high-quality directors with relevant experience. The remuneration policy is reviewed annually by the People and Culture Committee. Non-executive Director fees are set after consideration of fees paid by companies of comparable size, complexity, industry, and geography, and reflect the qualifications and experience necessary to discharge the Board’s responsibilities.

The current Non-executive Director aggregate fee limit is $3,600,000 and was approved by the then shareholders of the Company at a general meeting held on 19 September 2018 prior to listing. There were no increases to Board and Committee fees in FY21.

Table 10 sets out the Board and committee fees in Australian dollars (inclusive of superannuation) for FY21.

Table 10 Board and committee fees in Australian dollars (inclusive of superannuation) for FY21

BOARD AND COMMITTEE FEES CHAIR MEMBER Board $695,0001 $220,000 Audit and Risk Committee $55,000 $27,000 People and Culture Committee $55,000 $27,000 Nomination Committee No fee No fee

1 The Chairman of the Board does not receive Committee fees in addition to his Board fee.

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5.3 FY21 Non-executive Director remuneration

Table 11 outlines the remuneration for the Non-executive Directors of Coles during FY21. There were no loans between Non-executive Directors and the Company or any of its subsidiaries during FY21.

Table 11 FY21 Non-executive Director remuneration

BASE AND COMMITTEE FEES

(EXCLUDING SUPER- Overview FINANCIAL SUPER- OTHER ANNUATION TOTAL NAME YEAR ANNUATION) BENEFITS5 BENEFITS COMPENSATION James Graham 2021 $673,306 $628 $21,694 $695,628 2020 $673,997 $1,273 $21,003 $696,273 Operating and Financial Review Financial and Operating David Cheesewright1 2021 $247,000 - - $247,000 2020 $244,007 - $2,993 $ 247,000 Jacqueline Chow 2021 $225,306 $807 $21,694 $247,807 2020 $225,997 $1,088 $21,003 $248,088 Abigail Cleland2 2021 $241,576 $396 $5,424 $247,396 2020 $234,543 $91 $12,457 $247,091 Richard Freudenstein2 2021 $264,153 - $10,847 $275,000 2020 $264,499 - $10,501 $275,000 Paul O’Malley3 2021 $189,979 - $16,271 $206,250 Wendy Stops 2021 $226,818 $1,595 $20,182 $248,595 Directors’ Report Directors’ 20202 $231,248 $1,191 $15,752 $248,191 Zlatko Todorcevski4 2021 $63,326 $60 $5,424 $68,810 2020 $253,997 $372 $21,003 $275,372 TOTAL 2021 $2,131,464 $3,486 $101,536 $2,236,486 TOTAL 2020 $2,128,288 $4,015 $104,712 $2,237,015

1 Due to Mr Cheesewright residing outside of Australia, superannuation obligations are only payable for any time worked in Australia. With travel restrictions in place during FY21 as a result of COVID-19,

Mr Cheesewright did not work in Australia during FY21, therefore no superannuation contributions were paid as part of Mr Cheesewright’s Non-executive Director Fees. Remuneration Report 2 Approval was obtained from the ATO by individual Non-executive Directors to be exempt from making superannuation contributions due to superannuation obligations being met by other employers. 3 Mr O’Malley was appointed to the Board on 1 October 2020. His remuneration for FY21 is disclosed from this date to 27 June 2021. 4 Mr Todorcevski retired from the Board effective 30 September 2020. His remuneration for FY21 is disclosed from 29 June 2020 to this date. 5 Other benefits include costs associated with directorships (including any applicable fringe benefits tax). Section 6: Ordinary shareholdings 6.1 Non-executive Director Ordinary Shareholdings

Table 12 shows the shareholdings and movements in shares held directly, or indirectly, by each Non-executive Director, including their related Report Financial parties during FY21.

Table 12 Non-executive Director Ordinary Shareholdings

BALANCE OF CLOSING SHARES HELD AT SHARES SHARES BALANCE AS AT Shareholder information NAME 29 JUNE 2020 ACQUIRED DISPOSED 27 JUNE 2021 James Graham 500,188 - - 500,188 David Cheesewright 20,000 - - 20,000 Jacqueline Chow 20,000 - - 20,000 Abigail Cleland 19,816 - - 19,816 Richard Freudenstein 19,000 - - 19,000 Paul O’Malley 3,8091 - - 3,809 Wendy Stops 20,000 5,000 - 25,000 Zlatko Todorcevski2 19,201 - - 19,201 TOTAL 622,014 5,000 - 627,014

1 Mr O’Malley’s shareholding of 3,809 shares held indirectly is as at 1 October 2020, upon appointment to the Board. 2 Mr Todorcevski held 19,201 shares indirectly as at his retirement date of 30 September 2020.

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6.2 Executive KMP Ordinary Shareholdings

Table 13 shows the shareholdings and movements in shares held directly, or indirectly, by each KMP, including their related parties during FY21.

Table 13 Executive KMP Ordinary Shareholdings

BALANCE OF CLOSING SHARES HELD AT SHARES SHARES BALANCE AS AT NAME 29 JUNE 2020 ACQUIRED DISPOSED 27 JUNE 2021 Steven Cain 50,000 - - 50,000 Leah Weckert 22,406 13,9241 - 36,330 Greg Davis 55,320 13,9241 - 69,244 Matthew Swindells 605 13,9241 - 14,529 TOTAL 128,331 41,772 - 170,103

1 Shares acquired by Ms Weckert, Mr Davis and Mr Swindells are shares released from holding lock as referred to in Table 9.1

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Coles Group Limited 2021 Annual Report Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001 Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Auditor’s Independence Declaration to the Directors of Coles Group Limited Overview

Auditor’sAs lead auditor Independence for the audit of theDeclaration financial report to ofthe Coles Directors Group Limited of Coles for the Group financial Limited year ended 27 June 2021, I declare to the best of my knowledge and belief, there have been:

As lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended Review Financial and Operating a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in 27 Junerelation 2021, I todeclare the audit to the; and best of my knowledge and belief, there have been:

a)b) no contraventions of anythe auditorapplicable independence code of professional requirements conduct of the in relationCorporations to the Act audit. 2001 in relation to the audit; and This declaration is in respect of Coles Group Limited and the entities it controlled during the financial b) no contraventions of any applicable code of professional conduct in relation to the audit. year.

This declaration is in respect of Coles Group Limited and the entities it controlled during the financial year.

Report Directors’

Ernst & Young

Ernst & Young

Remuneration Report Fiona Campbell Partner

18 August 2021 Fiona Campbell

Partner

18 August 2021

Report Financial Shareholder information

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation75

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Financial Report

Consolidated Financial Statements Notes to the Consolidated Financial Statements

Income Statement Basis of preparation and accounting policies Balance Sheet Statement of Changes in Equity Section 1: Performance Cash Flow Statement 1.1 Segment reporting 1.2 Earnings per share 1.3 Sales revenue 1.4 Administration expenses 1.5 Financing costs 1.6 Income tax

Section 2: Assets and liabilities 2.1 Cash and cash equivalents 2.2 Trade and other receivables 2.3 Other assets 2.4 Inventories 2.5 Property, plant and equipment 2.6 Intangible assets 2.7 Leases 2.8 Trade and other payables 2.9 Provisions

Section 3: Capital 3.1 Interest-bearing liabilities 3.2 Contributed equity and reserves 3.3 Dividends paid and proposed

Section 4: Financial risk 4.1 Impairment of non-financial assets 4.2 Financial risk management 4.3 Financial instruments

Section 5: Group structure 5.1 Equity accounted investments 5.2 Assets held for sale 5.3 Subsidiaries 5.4 Parent entity information

Section 6: Unrecognised items 6.1 Commitments 6.2 Contingent liabilities

Section 7: Other disclosures 7.1 Related party disclosures 7.2 Employee share plans 7.3 Auditor’s remuneration 7.4 New accounting standards and interpretations 7.5 Events after the reporting period

Directors’ Declaration Independent Auditor’s Report

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Income Statement for the 52 weeks ended 27 June 2021 Overview 2021 2020 NOTES $M $M Sales revenue 1.3 38,562 37,408 Other operating revenue 370 376

Total operating revenue 38,932 37,784 Review Financial and Operating Cost of sales (28,773) (28,043) Gross profit 10,159 9,741 Other income 111 108 Administration expenses 1.4 (8,392) (8,081) Share of net loss from equity accounted investments 5.1 (5) (6) Earnings before interest and tax (EBIT) 1,873 1,762 Financing costs 1.5 (427) (443) Profit before income tax 1,446 1,319 Income tax expense 1.6 (441) (341)

Profit for the period 1,005 978 Report Directors’

Profit attributable to: Equity holders of the parent entity 1,005 978 Earnings per share (EPS) attributable to equity holders of the parent: Basic and diluted EPS (cents) 1.2 75.3 73.3 Other comprehensive income Remuneration Report Items that may be reclassified to profit or loss: Net movement in the fair value of cash flow hedges (9) (17) Income tax effect 1.6 3 5 Other comprehensive loss which may be reclassified to profit or loss in subsequent periods (6) (12) Total comprehensive income attributable to: Equity holders of the parent entity 999 966

The accompanying notes form part of the consolidated financial statements. Financial Report Shareholder Information

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Balance Sheet as at 27 June 2021

2021 2020 NOTES $M $M Assets Current assets Cash and cash equivalents 2.1 787 992 Trade and other receivables 2.2 368 434 Inventories 2,107 2,166 Income tax receivable - 42 Assets held for sale 5.2 85 75 Other assets 2.3 87 70 Total current assets 3,434 3,779

Non-current assets Property, plant and equipment 2.5 4,463 4,127 Right-of-use assets 2.7 7,288 7,660 Intangible assets 2.6 1,698 1,597 Deferred tax assets 1.6 873 849 Equity accounted investments 5.1 220 217 Other assets 2.3 147 120 Total non-current assets 14,689 14,570 Total assets 18,123 18,349

Liabilities Current liabilities Trade and other payables 2.8 3,660 3,737 Provisions 2.9 950 861 Income tax payable 60 - Lease liabilities 2.7 897 885 Other 252 198 Total current liabilities 5,819 5,681

Non-current liabilities Interest-bearing liabilities 3.1 1,142 1,354 Provisions 2.9 458 472 Lease liabilities 2.7 7,859 8,198 Other 32 29 Total non-current liabilities 9,491 10,053 Total liabilities 15,310 15,734 Net assets 2,813 2,615

Equity Contributed equity 1,585 1,611 Reserves 69 43 Retained earnings 1,159 961 Total equity 2,813 2,615

The accompanying notes form part of the consolidated financial statements.

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Statement of Changes in Equity for the 52 Weeks ended 27 June 2021

NUMBER OF SHARE-BASED CASH FLOW Overview ORDINARY CONTRIBUTED PAYMENTS HEDGE RETAINED SHARES EQUITY RESERVE RESERVE EARNINGS TOTAL MILLIONS $M $M $M $M $M

2021 Review Financial and Operating Balance at beginning of period 1,334 1,611 56 (13) 961 2,615 Net profit for the period - - - - 1,005 1,005 Other comprehensive income - - - (6) - (6) Total comprehensive income for the period - - - (6) 1,005 999

Share-based payments expense - - 32 - - 32 Purchase of shares under Equity Incentive Plan - (26) - - - (26) Dividends paid - - - - (807) (807) Balance at end of period 1,334 1,585 88 (19) 1,159 2,813 Directors’ Report Directors’ 2020 Balance at beginning of period 1,334 1,628 43 (1) 1,687 3,357 Effect of adoption of AASB 16Leases - - - - (831) (831) Balance at beginning of period (adjusted) 1,334 1,628 43 (1) 856 2,526 Net profit for the period - - - - 978 978 Other comprehensive income - - - (12) - (12) Total comprehensive income for the period - - - (12) 978 966 Remuneration Report

Share-based payments expense - - 13 - - 13 Purchase of shares under Equity Incentive Plan - (17) - - - (17) Dividends paid - - - - (873) (873) Balance at end of period 1,334 1,611 56 (13) 961 2,615

The accompanying notes form part of the consolidated financial statements. Financial Report Shareholder Information

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Cash Flow Statement for the 52 weeks ended 27 June 2021

2021 2020 NOTES $M $M Cash flows from operating activities Receipts from customers 42,124 39,971 Payments to suppliers and employees (38,496) (36,486) Interest paid (47) (37) Interest component of lease payments (390) (399) Interest received 4 7 Income tax paid (358) (504) Net cash flows from operating activities 2.1 2,837 2,552

Cash flows used in investing activities Purchase of property, plant and equipment and intangibles (1,279) (833) Proceeds from sale of property, plant and equipment 181 211 Net investments in joint venture and associate 5.1 (8) (11) Acquisition of subsidiaries or businesses, net of cash acquired - (25) Net cash flows used in investing activities (1,106) (658)

Cash flows used in financing activities Proceeds from borrowings 7,232 5,120 Repayment of borrowings (7,444) (5,226) Payment of principal component of lease payments (891) (846) Dividends paid (807) (873) Purchase of shares under Equity Incentive Plan (26) (17) Net cash flows used in financing activities (1,936) (1,842)

Net increase in cash and cash equivalents (205) 52 Cash at beginning of period 992 940 Cash at end of the period 787 992

The accompanying notes form part of the consolidated financial statements.

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Notes to the Consolidated Financial Statements

The Financial Report of Coles Group Limited (‘the Company’) in respect of the Company and the entities it controlled at the reporting date or Overview during the 52-week period ended 27 June 2021 (collectively, ‘the Group’) was authorised for issue in accordance with a resolution of the Directors on 18 August 2021. The comparative period is for the 52-week period ended 28 June 2020.

Reporting entity Operating and Financial Review Financial and Operating The Company is a for-profit company limited by shares which is incorporated and domiciled in Australia and listed on the Australian Securities Exchange (ASX).

The nature of the operations and principal activities of the Group are described in Note 1.1 Segment Reporting.

Basis of preparation and accounting policies

The Financial Report is a general purpose financial report, which has been prepared in accordance with Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 (Cth). The Financial Report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments measured at fair Directors’ Report Directors’ value as explained in the notes to the consolidated financial statements (‘the Notes’).

The accounting policies adopted are consistent with those of the previous period. Refer to Note 7.4 New accounting standards and interpretations.

This Financial Report presents reclassified comparative information where required for consistency with the current period’s presentation.

Key judgements, estimates and assumptions

The preparation of the financial statements requires judgement and the use of estimates and assumptions in applying the Group’s accounting Remuneration Report policies, which affect amounts reported for assets, liabilities, income and expenses.

Judgements, estimates and assumptions are continuously evaluated and are based on the following:

• historical experience • current market conditions • reasonable expectations of future events Financial Report Actual results may differ from these judgements, estimates and assumptions. Uncertainty about these judgements, estimates and assumptions could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods.

The Group has incorporated specific judgements, estimates and assumptions relating to the ongoing impacts of COVID-19 in determining the amounts recognised in the financial statements based on conditions existing at the reporting date, recognising uncertainty still exists in relation to its timeframe, the measures to control it and its economic impact.

The key areas involving judgement or significant estimates and assumptions are set out below: Shareholder Information

NOTE JUDGEMENTS Note 2.7 Leases Determining the lease term Note 5.1 Equity accounted investments Control and significant influence NOTE ESTIMATES AND ASSUMPTIONS Note 2.4 Inventories Net realisable value, Commercial income Note 2.7 Leases Incremental borrowing rate Note 2.9 Provisions Employee benefits, Self-insurance, Restructuring Note 4.1 Impairment of non-financial assets Assessment of recoverable amount Note 6.2 Contingent liabilities Contingent liabilities Note 7.2 Employee share plans Valuation of share-based payments

Detailed information about each of these judgements, estimates and assumptions is included in the Notes together with information about the basis of calculation for each affected line item in the financial statements.

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Basis of preparation and accounting policies (continued)

The notes

The Notes include information which is required to understand the consolidated financial statements and is material and relevant to the operations, financial performance and position of the Group.

Information is considered material and relevant if, for example:

• the amount in question is significant because of its size or nature • it is important for understanding the results of the Group • it helps to explain the impact of significant changes in the Group’s business • it relates to an aspect of the Group’s operations that is important to its future performance

The Notes are organised into the following sections:

1. PERFORMANCE: this section provides information on the performance of the Group, including segment results, earnings per share and income tax.

2. ASSETS AND LIABILITIES: this section details the assets used in the Group’s operations and the liabilities incurred as a result.

3. CAPITAL: this section provides information relating to the Group’s capital structure and financing.

4. FINANCIAL RISK: this section details the Group’s exposure to various financial risks, explains how these risks may impact the Group’s financial performance or position, and details the Group’s approach to managing these risks.

5. GROUP STRUCTURE: this section provides information relating to subsidiaries and other material investments of the Group.

6. UNRECOGNISED ITEMS: this section provides information about items that are not recognised in the consolidated financial statements but could potentially have a significant impact on the Group’s financial performance or position in the future.

7. OTHER DISCLOSURES: this section provides other disclosures required by Australian Accounting Standards that are considered relevant to understanding the Group’s financial performance or position.

Basis of consolidation

In preparing these consolidated financial statements, subsidiaries are consolidated from the date the Group gains control until the date on which control ceases. The Group’s share of results of its equity accounted investments is included in the consolidated financial statements from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. All intercompany transactions are eliminated.

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

Foreign currency

These consolidated financial statements are presented in Australian dollars, which is the functional currency of the Group. Foreign currency transactions are translated into the functional currency using the exchange rates at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at reporting date exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges.

Accounting policies

Accounting policies that summarise the classification, recognition and measurement basis of financial statement line items and that are relevant to the understanding of the consolidated financial statements are provided throughout the Notes.

Rounding of amounts

The amounts contained in the Financial Report have been rounded to the nearest million dollars (unless specifically stated to be otherwise) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies.

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1. Performance

This section provides information on the performance of the Group, including segment results, earnings per share and income tax.

1.1 Segment reporting

The Group has identified its operating segments based on internal reporting to the Managing Director and Chief Executive Officer (the chief Overview operating decision-maker). The Managing Director and Chief Executive Officer regularly reviews the Group’s internal reporting to assess performance and allocate resources across the operating segments. The segments identified offer different products and services and are managed separately.

The Group’s reportable segments are set out below: Review Financial and Operating

REPORTABLE SEGMENT DESCRIPTION Supermarkets Fresh food, groceries and general merchandise retailing (includes Coles Online and Coles Financial Services) Liquor Liquor retailing, including online delivery services Express Convenience store operations and commission agent for retail fuel sales

Other business operations that are not separately reportable (such as Property), as well as costs associated with enterprise functions (such as Insurance and Treasury) are included in ‘Other’.

There are varying levels of integration between operating segments. This includes the common usage of property, services and administration functions. Financing costs and income tax are managed on a Group basis and are not allocated to operating segments. Directors’ Report Directors’ EBIT is the key measure by which management monitors the performance of the segments.

The Group does not have operations in other geographic areas or economic exposure to any individual customer that is in excess of 10% of sales revenue.

SUPERMARKETS LIQUOR EXPRESS OTHER CONSOLIDATED

$M $M $M $M $M Remuneration Report 2021 Sales revenue 33,845 3,525 1,192 - 38,562 Segment EBIT 1,702 165 67 (61) 1,873 Financing costs (427) Profit before income tax 1,446 Income tax expense (441) Profit for the period 1,005 Financial Report Share of net loss of equity accounted investments included in EBIT (5) 2020 Sales revenue 32,993 3,308 1,107 - 37,408 Segment EBIT 1,618 138 33 (27) 1,762 Financing costs (443)

Profit before income tax 1,319 Shareholder Information Income tax expense (341) Profit for the period 978 Share of net loss of equity accounted investments included in EBIT (6)

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1.2 Earnings per share (EPS) 2021 2020 EPS attributable to equity holders of the Company Basic and diluted EPS (cents) 75.3 73.3 Profit for the period ($M) 1,005 978 Weighted average number of ordinary shares for basic EPS (shares, million) 1,334 1,334 Weighted average number of ordinary shares for diluted EPS (shares, million) 1,335 1,334

Calculation methodology

EPS is profit for the period attributable to ordinary equity holders of the Company, divided by the weighted average number of ordinary shares on issue during the period.

Diluted EPS is calculated on the same basis except that it includes the impact of any potential commitments the Group has to issue shares in the future.

Between the reporting date and the issue date of the Financial Report, there have been no transactions involving ordinary shares or potential ordinary shares that would impact the calculation of EPS disclosed in the table above.

1.3 Sales revenue

Sale of goods

The Group operates a network of supermarkets, retail liquor stores and convenience stores, as well as online platforms. Revenue is recognised by the Group when it is the principal in the sales transaction. Revenue from the sale of goods is recognised when control of the goods has transferred to the customer. For goods purchased in-store, control of the goods transfers to the customer at the point of sale. For goods purchased online, control of the goods transfers to the customer upon delivery, or when collected by the customer.

Revenue comprises the fair value of consideration received or receivable for the sale of goods and is recorded net of discounts and goods and services tax (GST).

1.4 Administration expenses 2021 2020 $M $M Employee benefits expense 4,898 4,768 Occupancy and overheads 707 652 Depreciation and amortisation1 1,513 1,440 Marketing expenses 242 216 Impairment reversal (3) (41) Other store expenses 623 659 Other administration expenses 412 387 Total administration expenses 8,392 8,081

1 Total depreciation and amortisation for FY21 is $1,559 million (FY20: $1,495 million), the remaining depreciation and amortisation is included within cost of sales.

Employee benefits expense is comprised of:

2021 2020 $M $M Remuneration, bonuses and on-costs 4,493 4,387 Superannuation expense 369 355 Share-based payments expense 36 26 Total employee benefits expense 4,898 4,768

Employee benefits expense

The Group’s accounting policy for liabilities associated with employee benefits is set out in Note 2.9 Provisions. The policy relating to share- based payments is set out in Note 7.2 Employee share plans.

Share-based payments expense includes both awards granted by the Company that will be settled in equity of the Company and awards granted by Wesfarmers (pre demerger) to employees of the Group that will be settled in equity of Wesfarmers.

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Retirement benefit obligations

The Group contributes to a number of superannuation funds on behalf of its employees, and the Group’s legal or constructive obligation is limited to these contributions. Contributions payable by the Group are recognised as an expense in the Income Statement when incurred.

1.5 Financing costs

2021 2020 $M $M

Interest expense 23 32 Overview Imputed interest on lease liabilities 390 399 Discount rate adjustment - 3 Other finance related costs 14 9 Total financing costs 427 443 Operating and Financial Review Financial and Operating

Financing costs

Financing costs consist of interest and other costs incurred in connection with the borrowing of funds, imputed interest on lease liabilities as well as the discount rate adjustments associated with non-current provisions (excluding employee benefits). Financing costs directly attributable to the acquisition, construction or production of an asset, that necessarily takes more than 12 months to get ready for its intended use or sale, are capitalised as part of the cost of the asset. All other financing costs are expensed in the period in which they are incurred.

1.6 Income tax

The major components of income tax expense in the Income Statement are set out below: Directors’ Report Directors’

2021 2020 $M $M Current income tax expense 449 461 Adjustment in respect of current income tax of previous periods 13 (5) Deferred income tax relating to origination and reversal of temporary differences (18) (79)

Adjustment in respect of deferred income tax of previous periods (3) (36) Remuneration Report Income tax expense reported in the Income Statement 441 341

The components of income tax expense recognised in Other Comprehensive Income (OCI) are set out below:

2021 2020 $M $M Deferred tax related to items recognised in OCI during the period: Net loss on revaluation of cash flow hedges 3 5 Financial Report Deferred income tax charged to OCI 3 5

The tax expense included in the Income Statement consists of current and deferred income tax.

CURRENT INCOME TAX IS: DEFERRED INCOME TAX IS:

• the expected tax payable on taxable income for the period • recognised using the liability method Shareholder Information • calculated using tax rates enacted or substantively enacted • based on temporary differences between the carrying amounts at the reporting date of assets and liabilities for financial reporting purposes and the • inclusive of any adjustment to income tax payable or amounts for taxation purposes recoverable in respect of previous periods • calculated using the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on the tax rates that have been enacted or substantively enacted by the reporting date

Both current and deferred income tax are charged or credited to the Income Statement. However, when it relates to items charged or credited directly to the Statement of Changes in Equity or Other Comprehensive Income, the tax is recognised in equity, or OCI, respectively.

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1.6 Income tax (continued)

Reconciliation of the Group’s applicable tax rate to the effective tax rate

2021 2020 $M $M Profit before income tax 1,446 1,319 At Australia’s corporate tax rate of 30.0% (2020: 30.0%) 434 396 Adjustments in respect of income tax of previous periods 10 2 Share of results of joint venture 2 2 Non-deductible expenses for income tax purposes 2 5 Non-assessable income for income tax purposes (7) (21) Significant item - tax consolidation - (31) Significant item - incorporated joint venture with Australian Venue Co. - (12) Income tax expense reported in the Income Statement1 441 341

1 At the effective income tax rate of 30.5% (2020: 25.9%)

Tax consolidation

The Company and its 100% owned Australian resident subsidiaries formed an income tax consolidated group with effect from 31 December 2018.

The Company is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement which operates to manage joint and several liability for group tax liabilities amongst group members as well as enable group members to leave the group clear of future group tax liabilities. Members of the group have also entered into a taxation funding agreement which provides that each member of the tax consolidated group pay a tax equivalent amount to or from the parent in accordance with their notional current tax liability or current tax asset. Such amounts are reflected in amounts receivable from or payable to the parent company in their accounts and are settled as soon as practicable after lodgement of the consolidated tax return and payment of the tax liability.

Deferred income tax balances recognised in the Balance Sheet

CHARGED OPENING TO PROFIT CREDITED CLOSING BALANCE OR LOSS TO OCI OTHER BALANCE 2021 $M $M $M $M $M Provisions 56 5 - - 61 Employee benefits 249 8 - - 257 Trade and other payables 34 16 - - 50 Inventories 45 - - - 45 Property, plant and equipment 139 14 - - 153 Intangible assets 17 1 - - 18 Lease Liabilities 2,725 (268) - 170 2,627 Cash flow hedges 6 - 3 - 9 Other individually insignificant balances 19 (7) - - 12 Deferred tax assets 3,290 (231) 3 170 3,232 Accelerated depreciation for tax purposes 96 20 - - 116 Right-of-use assets 2,297 (272) - 161 2,186 Other assets - - - 9 9 Other individually insignificant balances 48 - - - 48 Deferred tax liabilities 2,441 (252) - 170 2,359 Net deferred tax assets 849 21 3 - 873

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EFFECT OF ADOPTION OF CHARGED OPENING AASB 16 TO PROFIT CREDITED CLOSING BALANCE LEASES OR LOSS TO OCI ACQUISITIONS BALANCE 2020 $M $M $M $M $M $M Provisions 92 (34) (3) - 1 56 Employee benefits 215 - 34 - - 249 Trade and other payables 15 - 19 - - 34

Inventories 41 - 4 - - 45 Overview Property, plant and equipment 127 - 12 - - 139 Intangible assets (7) - 24 - - 17 Lease Liabilities - 2,681 35 - 9 2,725

Cash flow hedges 1 - - 5 - 6 Review Financial and Operating Other individually insignificant balances 22 (18) 15 - - 19 Deferred tax assets 506 2,629 140 5 10 3,290 Accelerated depreciation for tax purposes 88 - 8 - - 96 Right-of-use assets - 2,280 8 - 9 2,297 Other individually insignificant balances 53 (7) 2 - - 48 Deferred tax liabilities 141 2,273 18 - 9 2,441 Net deferred tax assets 365 356 122 5 1 849

Tax assets and liabilities Directors’ Report Directors’ Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set off current taxation assets against current taxation liabilities and it is the intention to settle these on a net basis.

The Group has unrecognised deferred tax assets relating to temporary differences arising from its investments in Loyalty Pacific Pty Ltd Remuneration Report (operator of the flybuys loyalty program) and Queensland Venue Co. Pty Ltd (QVC), and capital losses from disposal of capital gains tax assets. Deferred tax assets have not been recognised in relation to these amounts as the Group has determined that at the reporting date, it is not probable that taxable profits will be available against which the Group can utilise these benefits. The unrecognised deferred tax asset is $109 million (2020: $112 million).

An uncertain tax treatment is any tax treatment applied by the Group where there is uncertainty over whether it will be accepted by the relevant tax authority. If it is not probable that the treatment will be accepted, the effect of the uncertainty is reflected in the period in which that determination is made (for example, by recognising an additional tax liability). The Group measures the impact of the uncertainty using Financial Report the method that best predicts the resolution of the uncertainty: either the most likely amount method or the expected value method. The judgements and estimates made to recognise and measure the effect of uncertain tax treatments are reassessed whenever circumstances change or when there is new information that affects those judgements.

The Group determined, based on its tax compliance, that it is probable that its tax treatments applied at 27 June 2021 will be accepted by the taxation authorities.

Goods and services tax (GST) Shareholder Information

Revenue, expenses and assets are recognised net of GST, except:

• when the GST incurred on the sale or purchase of assets or services is not payable to or recoverable from the taxation authority, in which case GST is recognised as part of the revenue or the expense item or as part of the cost of acquisition of the asset; or • when receivables are stated with the amount of GST included.

The net amount of GST recoverable from or payable to the taxation authority is included as part of receivables or payables in the Balance Sheet. Commitments and contingencies are disclosed net of the amount of GST recoverable from or payable to the taxation authority.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities where recoverable or payable to the taxation authority is classified as part of operating cash flows.

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2. Assets and liabilities

This section details the assets used in the Group’s operations and the liabilities incurred as a result.

2.1 Cash and cash equivalents

Cash and cash equivalents are comprised of the following:

2021 2020 $M $M Cash on hand and in transit 576 540 Cash at bank and on deposit 211 452 Total cash and cash equivalents 787 992

All receivables from EFT, credit card and debit card point of sale transactions during the period are classified as cash and cash equivalents.

For the purpose of the Cash Flow Statement, cash and cash equivalents includes cash on hand and in transit, at bank and on deposit, net of outstanding bank overdrafts which are repayable on demand.

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits earn interest at the respective short-term deposit rates.

Reconciliation of profit for the period to net cash flows from operating activities

2021 2020 $M $M Profit for the period 1,005 978 Adjustments for: Depreciation and amortisation 1,559 1,495 Impairment reversal (3) (41) Net loss on disposal of non-current assets 12 39 Share of net loss of equity accounted investments 5 6 Share-based payments expense 32 13 Other 13 - Changes in assets and liabilities net of the effects of acquisitions and disposals of businesses: (Increase) / decrease in inventories 59 (201) (Increase) / decrease in trade and other receivables 66 (78) Increase in prepayments (12) (20) Increase in other assets (32) (4) Increase in deferred tax assets (24) (121) (Increase) / decrease in income tax receivable 102 (42) Increase / (decrease) in trade and other payables (77) 339 Increase in provisions 75 138 Increase in other liabilities 57 51 Net cash flows from operating activities 2,837 2,552

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2.2 Trade and other receivables

Trade and other receivables are comprised of the following:

2021 2020 $M $M Trade receivables1 315 314 Other receivables 63 130 378 444 Overview Allowance for expected credit losses (10) (10) Total trade and other receivables 368 434

1 Includes commercial income due from suppliers of $119 million (2020: $140 million).

Trade receivables and other receivables are classified as financial assets held at amortised cost. Review Financial and Operating

Trade receivables

Trade receivables are initially recognised at the amount due and subsequently at amortised cost using the effective interest method, less an allowance for expected credit losses (impairment provision). The carrying value of trade and other receivables, less impairment provisions, is considered to approximate fair value, due to the short-term nature of the receivables.

Impairment of trade receivables

The collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts which are known to be uncollectable are written off when identified. Directors’ Report Directors’ The Group recognises an impairment provision based upon anticipated lifetime losses of trade receivables. The anticipated lifetime losses are determined with reference to historical experience and are regularly reviewed and updated.

The amount of the impairment loss is recognised in the Income Statement within ‘administration expenses’.

2.3 Other assets

Other assets are comprised of the following: Remuneration Report

2021 2020 $M $M Prepayments 85 69 Other assets 2 1 Total other current assets 87 70

Prepayments 17 21 Financial Report Other assets 130 99 Total other non-current assets 147 120 Shareholder Information

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2.4 Inventories

Inventories comprise goods held for resale and are valued at the lower of cost and net realisable value, which is the estimated selling price less estimated costs to sell.

The cost of inventory is based on purchase cost, after deducting certain types of commercial income and including logistics and store remuneration incurred in bringing inventories to their present location and condition.

Volume-related supplier rebates, and supplier promotional rebates where they exceed spend on promotional activities, are accounted for as a reduction in the cost of inventory and recognised in the Income Statement when the inventory is sold.

Key estimate: Net realisable value An inventory provision is recognised where the realisable value from sale of inventory is estimated to be lower than the inventory’s carrying value. Inventory provisions for different product categories are estimated based on various factors, including expected sales profile, prevailing sales prices, seasonality and expected losses associated with slow-moving inventory items.

Commercial income

Commercial income represents various discounts or rebates provided by suppliers. These include:

• settlement discounts for the purchase of inventory • discounts based on purchase or sales volumes • contributions towards promotional activity for a supplier’s product

Depending on the type of arrangement with the supplier, commercial income will either be deducted from the cost of inventory (where it relates to the purchase of inventory) or recognised as a reduction in related expenses (where it relates to the sale of goods).

Amounts due from suppliers are recognised within trade receivables, except in cases where the Group currently has the legal right and the intention to offset, in which case only the net amount receivable or payable is presented. Refer to Note 4.3 Financial instruments for details of amounts offset in the Balance Sheet.

Key estimate: Commercial income The recognition of certain types of commercial income requires the following estimates:

• the volume of inventory purchases that will be made during a specific period • the amount of the related product that will be sold • the balance remaining in inventory at the reporting date.

Estimates are based on historical and forecast sales and inventory turnover levels.

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8 (94) (85) $M 917 (46) (562) 9,098 1,069 4,463 4,463 (4,635) TOTAL 4,119 4,127 4,127 (224) (543) (4,233) 778 645 4,127 43 8,360

- - - - (1) (5) 96 80 (76) $M (71) 474 108 108 474 474 500 500 (639) (580) 1,139 1,054 Overview 449 LEASEHOLD Term of lease Term IMPROVEMENTS IMPROVEMENTS Operating and Financial Review Financial and Operating

(1) (9) (6) (22) (1) $M 816 (77) 661 (480) 7,300 3,313 3,313 (3,987) (469) 3 – 20 years 2,947 2,947 3,009 3,009 615 (3,644) 483 6,653 3,009 PLANT & EQUIPMENT

- - (9) (3) (6) (9) (61) (18) (13) (32) $M 310 148 126 301 301 Directors’ Report Directors’ BUILDINGS BUILDINGS 20 – 40 years 251 231 231 240 231 57 82

- - - 9 19 (43) (49) $M (86) 349 349 349 (27) LAND Remuneration Report Not applicable 472 413 413 - - - - 413 413 10 44 Financial Report Shareholder Information 1 1 Net loss on disposal of property, plant and equipment during the period was $12 million (2020: $39 million net loss) 2020 Cost Accumulated depreciation and impairment Carrying amount at end of period Carrying amount at beginning of period Additions Transfer assets to held for sale Depreciation Impairment Disposals and write-offs Carrying amount at end of period Construction progress work in above included 1 Useful (range) life 2021 Cost Accumulated depreciation and impairment Carrying amount at end of period Carrying amount at beginning of period Additions Transfer assets to held for sale Depreciation Impairment Disposals and write-offs Carrying amount at end of period 2.5 Property, plant and equipment Property, plant and equipment is carried at cost less accumulated depreciation and any recognised impairment. Cost comprises expenditure that is directly attributable the to acquisition of the item and subsequent costs incurred that are eligible for capitalisation. Repairs and maintenance costs are charged the to Income Statement during the period which in they are incurred. Property, plant and equipment is depreciated on a straight-line basis its to residual value over its expected useful life. Construction progress work in above included

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2.6 Intangible assets

The Group’s intangible assets comprise licences, software and goodwill.

Licences and software

Licences and software are measured initially at acquisition cost or costs incurred to develop the asset. Intangible assets acquired in a business combination are recognised at fair value at the acquisition date. Following initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. They are amortised on a straight-line basis over their estimated useful lives. Intangible assets with indefinite useful lives are not amortised. Instead they are tested for impairment annually or more frequently if events or changes in circumstances indicate they may be impaired.

Licences have been assessed as having indefinite lives on the basis that the licences are expected to be renewed in line with business continuity requirements.

For internally generated software, research costs are expensed as incurred. Development expenditure is capitalised when management has the intention to develop the asset, it is probable that future economic benefits will flow to the Group and the cost can be reliably measured.

In respect to cloud computing arrangements, the Group assesses whether the arrangement contains a lease and if not, whether the arrangement provides the Group with a resource that it can control. Costs associated with implementation are then assessed as to whether they can be capitalised in accordance with relevant accounting standards.

Goodwill

Goodwill recognised by the Group has arisen as a result of business combinations and represents the future economic benefits that arise from assets that are not capable of being individually identified and separately recognised.

Goodwill is initially measured as the amount the Group has paid in acquiring a business over and above the fair value of the individual assets and liabilities acquired. Goodwill is considered to have an indefinite useful economic life. It is therefore not amortised but is instead tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is carried at cost less any accumulated impairment losses and, for the purpose of impairment testing, is allocated to cash generating units.

Refer to Note 4.1 Impairment of non-financial assets for further details on impairment testing.

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(5) (2) (97) $M (91) 149 203 186 220 (919) 2,708 2,516 1,597 1,541 (1,010) 1,698 1,698 1,597 1,597 TOTAL

------1 (1) (1) 27 26 28 28 27 27 27 27 $M Overview Indefinite LICENCES Operating and Financial Review Financial and Operating

(5) (2) (97) $M (91) 414 145 203 186 220 362 414 414 515 515 (918) 1,524 1,332 (1,009) 5 years SOFTWARE

------3 $M 1,156 1,156 1,156 1,153 1,156 1,156 1,156 1,156 Indefinite Directors’ Report Directors’ GOODWILL Remuneration Report Financial Report Shareholder Information Useful (range) life 2021 Cost Carrying amount at end of period Carrying amount at beginning of period Additions Impairment Amortisation Accumulated amortisation and impairment Carrying amount at end of period Development work progress in included above 2020 Cost Accumulated amortisation and impairment Carrying amount at end of period Carrying amount at beginning of period Additions Impairment Amortisation Carrying amount at end of period Development work progress in included above

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2.7 Leases

The Group has lease agreements for properties and various items of machinery, vehicles and other equipment used in its operations.

Set out below are the carrying amounts of recognised right-of-use assets and movements during the period:

2021 2020 PROPERTY NON-PROPERTY PROPERTY NON-PROPERTY LEASES LEASES TOTAL LEASES LEASES TOTAL $M $M $M $M $M $M At beginning of period 7,541 119 7,660 7,339 142 7,481 Additions 298 31 329 275 16 291 Other remeasurements1 199 - 199 749 - 749 Depreciation expense (862) (38) (900) (822) (39) (861) At end of period 7,176 112 7,288 7,541 119 7,660

1 Includes reasonably certain options and remeasurements, net of leases terminated.

Set out below are the carrying amounts of recognised lease liabilities and movements during the period:

2021 2020 $M $M At beginning of period 9,083 8,856 Additions 329 291 Other remeasurements1 235 782 Accretion of interest 390 399 Payments (1,281) (1,245) At end of period 8,756 9,083 Current 897 885 Non-current 7,859 8,198

1 Includes reasonably certain options and remeasurements, net of leases terminated.

The maturity analysis of lease liabilities is disclosed in Note 4.2 Financial risk management.

Variable lease payments based on sales

A number of the Group’s retail property lease agreements contain variable payment terms that are linked to sales. These lease payments are based on a percentage of sales recorded by a particular store. The specific percentage rent adjustment mechanism varies by individual lease agreement. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established stores. Variable lease payments are recognised in profit or loss in the period in which the condition that triggers those payments occurs and are generally payable for future periods in the lease term.

The following provides information on the Group’s variable lease payments, including the magnitude in relation to fixed payments:

2021 2020 FIXED VARIABLE FIXED VARIABLE PAYMENTS PAYMENTS TOTAL PAYMENTS PAYMENTS TOTAL $M $M $M $M $M $M Leases with lease payments based on sales 567 42 609 511 39 550

Extension options

Extension options are included in the majority of property leases across the Group. Where practicable, the Group seeks to include extension options when negotiating leases to provide flexibility and align with business needs. Leases may contain multiple extension options and are exercisable only by the Group and not by the lessors.

Extension options are only reflected in the lease liability when it is reasonably certain they will be exercised. When assessing if an option is reasonably certain to be exercised, a number of factors are considered including the option expiry date, whether formal approval to extend the lease has been obtained, store trading performance and the strategic importance of the site. Where a lease contains multiple extension options, only the next option is considered in the assessment. Option periods range from 1 to 15 years.

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Of the Group’s lease portfolio, 72% of leases have extension options (2020: 73%). Of those leases, 30%1 have an extension option included in the calculation of the lease liability at 27 June 2021 (2020: 32%).

The following amounts have been recognised in the Income Statement:

2021 2020 $M $M Depreciation of right-of-use assets 900 861 Interest expense on lease liabilities 390 399 Expenses relating to short-term leases (included in administration expenses) 6 7 Overview Variable lease payments based on sales (included in administration expenses) 42 39 Other variable lease payments (included in administration expenses) 7 9 Total amount recognised in the Income Statement 1,345 1,315 Operating and Financial Review Financial and Operating The Group recognised a total gain of $25 million relating to three sale and leaseback transactions during the period (2020: $14 million).

Group as lessee

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group applies a single recognition and measurement approach for all leases, except for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. The Group recognises lease liabilities to make future lease payments and right-of-use assets representing the right to use the underlying assets from the date the leased asset is available for use by the Group.

Each lease payment is apportioned between the liability and financing costs. Financing costs are recognised in the Income Statement over Directors’ Report Directors’ the lease term so as to produce a constant periodic rate of interest on the remaining liability.

The right-of-use asset is depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term (which includes options that are considered ‘reasonably certain’). Payments associated with short-term leases and leases of low-value assets are expensed when incurred in the Income Statement.

Cash payments for the principal portion of the lease liability are presented within financing activities in the Cash Flow Statement, while

payments relating to short-term leases, low-value assets and variable lease components not included in the measurement of the lease Remuneration Report liability are presented within cash flows from operating activities.

Lease liabilities are initially measured at net present value and comprise the following:

• fixed payments (including in-substance fixed payments), less any lease incentives • variable lease payments based on an index or rate, using the index or rate at the commencement date • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option

• payment of termination penalties if the lessee is reasonably certain to terminate the lease and incur penalties. Financial Report

If the interest rate implicit in the lease cannot be readily determined, the lease payments are discounted using the lessee’s incremental borrowing rate at the lease commencement date.

Right-of-use assets are measured at cost and comprise the following:

• the initial measurement of the lease liability Shareholder Information • any lease payments made at or before the commencement date, less any lease incentives received • any initial direct costs • any restoration costs.

Right-of-use assets are also subject to impairment testing. Refer to the accounting policies in Note 4.1 Impairment of non-financial assets.

1 51% of these leases contain one or more future extension options not included in the lease liability (2020: 50%).

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2.7 Leases (continued)

Key estimate: Incremental borrowing rate If the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

The IBR requires estimation when no observable rates are available or when adjustments need to be made to reflect the terms and conditions of the lease. The Group estimates the IBR using observable market inputs when available and is required to make certain estimates specific to the Group (such as credit risk).

Key judgement: Determining the lease term Extension options are included in the majority of property leases across the Group. In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option are considered. Extension options are only included in the lease term if the lease is reasonably certain to be exercised. The assessment is reviewed if a significant event or change in circumstance occurs which affects this assessment and is within the control of the Group.

Changes in the assessment of the lease term are accounted for as a reassessment of the lease liability at the date of the change.

Group as lessor

The Group leases out some of its freehold properties and sub-leases some of its right-of-use assets. The Group has classified these leases as operating leases because they do not transfer all of the risks and rewards incidental to ownership of the assets.

The undiscounted lease payments to be received are set out below:

2021 2020 $M $M Within one year 23 20 Between one and five years 49 46 More than five years 22 8 Total 94 74

Rental income is accounted for on a straight-line basis over the lease term and is included in ‘other operating revenue’ in the Income Statement. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Variable lease income not dependent on an index or rate is recognised as revenue in the period in which it is earned. The Group recognised income of $21 million for the period with respect to subleasing of its right-of-use assets (2020: $17 million).

2.8 Trade and other payables

Trade and other payables are comprised of the following:

2021 2020 $M $M Trade payables 2,794 2,898 Other payables 866 839 Total trade and other payables 3,660 3,737

Trade payables are non-interest-bearing and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

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2.9 Provisions

2021 2020 $M $M Current Employee benefits 778 746 Restructuring provision 51 6 Self-insurance liabilities 110 100

Other 11 9 Overview Total current provisions 950 861

Non-current

Employee benefits 91 89 Review Financial and Operating Restructuring provision 104 127 Self-insurance liabilities 263 256 Total non-current provisions 458 472

Movements in restructuring, self-insurance and other provisions

SELF- RESTRUCTURING INSURANCE OTHER TOTAL $M $M $M $M At beginning of period 133 356 9 498

Arising during the period 32 130 9 171 Report Directors’ Utilised (12) (105) (7) (124) Unused amounts reversed - (8) - (8) Unwind / changes in discount rate 2 - - 2 At end of period 155 373 11 539 Current 51 110 11 172 Non-current 104 263 - 367 Remuneration Report Financial Report Shareholder Information

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2.9 Provisions (continued)

Provisions are:

• recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that cash will be required to settle the obligation and the amount can be reliably estimated • measured at the present value of the estimated cash outflow required to settle the obligation.

Where a provision is non-current, and the effect is material, the nominal amount is discounted. The discount is recognised as a financing cost in the Income Statement.

PROVISION KEY ESTIMATES

Employee benefits Employee benefits provisions are based on a number of estimates including, but not limited to: Provisions for employee entitlements to annual leave, long service leave and employee incentives (where the Group does not have an unconditional right to • expected future wages and salaries defer payment for at least twelve months after the reporting date) are recognised • attrition (applicable to long service leave within the current provision for employee benefits and represent the amount provisions only) which the Group has a present obligation to pay, resulting from employees’ services up to the reporting date. • discount rates • expected salary related payments, interest and All other short-term employee benefit obligations are presented as payables. on-costs following a review of the pay Liabilities for long service leave where the Group has an unconditional right to arrangements for award-covered salaried team defer payment for at least twelve months after the reporting date are recognised members within the non-current provision for employee benefits.

Self-insurance Self-insurance provisions are based on a number of estimates including, but not limited to: The Group is self-insured for workers compensation and certain general liability risks. The Group seeks external actuarial advice in determining self-insurance • discount rates provisions. Provisions are discounted and are based on claims reported and an • future inflation estimate of claims incurred but not reported. • average claim size These estimates are reviewed bi-annually, and any reassessment of these • claims development estimates will impact self- insurance expense. • risk margin

Restructuring Restructuring provisions are based on a number of estimates including, but not limited to: Restructuring provisions are recognised when restructuring has either commenced or has raised a valid expectation in those affected, and the Group • number of employees impacted has a detailed formal plan identifying: • employee tenure and costs • the business or part of the business impacted • restructure timeframes • the location and approximate number of employees impacted • discount rates • an estimate of the associated costs • the timeframe for restructuring activities

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3. Capital

This section provides information relating to the Group’s capital structure and financing.

The Group’s capital management strategy aims to ensure the Group has continued access to funding for current and future business activities by maintaining a mix of equity and debt financing, while maximising returns to shareholders.

The Group’s objective is to maintain investment grade credit metrics to optimise the weighted average cost of capital over the long term, Overview enable access to long term debt capital markets and build investor confidence.

The Directors consider the capital structure at least twice a year and provide oversight of the Group’s capital management. Capital is managed through the following: Operating and Financial Review Financial and Operating • repaying or raising debt in line with ongoing business requirements and growth opportunities aligned with the Group’s strategic objectives • amount of ordinary dividends paid to shareholders • raising and returning capital.

3.1 Interest-bearing liabilities

2021 2020 $M $M Non-current

Bank debt 98 758 Report Directors’ Capital market debt 1,044 596 Total non-current interest-bearing liabilities 1,142 1,354

On 27 August 2020, Coles issued $450 million of Australian dollar medium term notes (Notes), comprising $300 million of 10-year fixed rate Notes and $150 million of five-year floating rate Notes. The 10-year fixed rate Notes are priced at a coupon of 2.1% and the five-year floating rate Notes are priced at a margin of 0.97% over 3-month BBSW. Proceeds from the Notes were used to repay bank debt. Remuneration Report In addition to the capital market debt, the Group is funded through a number of revolving multi-option and term loan facilities. These bilateral bank debt facilities in aggregate total $2,815 million (‘Coles facilities’). The Coles facilities have the following maturities: $1,290 million in November 2022, $1,425 million in November 2023 and $100 million in November 2025. At 27 June 2021, the facilities maturing in November 2022 and November 2023 were undrawn and the November 2025 facility was fully drawn.

Interest-bearing loans and borrowings are initially recorded at fair value, net of attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interest method. Gains and losses are recognised in the Income Statement when the liabilities are derecognised. Financial Report 3.2 Contributed equity and reserves

Ordinary shares

Ordinary shares on issue are classified as equity, are fully paid and carry one vote per share and the right to dividends. Incremental costs directly attributable to the issue of new shares are recognised as a deduction from equity, net of any related income tax benefit.

Cash flow hedge reserve Shareholder Information

The hedging reserve records the portion of the gain or loss on a cash flow hedging instrument that is determined to be in an effective hedge relationship. The effective portion of the gain or loss on the hedging instrument is recognised in Other Comprehensive Income within the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Income Statement.

Share-based payments reserve

The share-based payments reserve reflects the fair value of awards recognised as an expense in the Income Statement.

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3.3 Dividends paid and proposed

The Company considers current earnings, future cash flow requirements, targeted credit metrics and availability of franking credits in determining the amount of dividends to be paid.

Dividends are recognised as a liability in the Balance Sheet in the period in which they are determined by the Board.

CENTS PER SHARE TOTAL $M 2021 2020 2021 2020 Determined and paid during the period Paid final dividend (30% franked) 27.5 24.0 367 320 Paid special dividend (30% franked) - 11.5 - 154 Paid interim dividend (30% franked) 33.0 30.0 440 399 60.5 65.5 807 873

Proposed and unrecognised at reporting date1

Final dividend proposed (30% franked) 28.0 27.5 374 367 28.0 27.5 374 367

1 Estimated final dividend payable, subject to variations in the number of shares up to the record date.

The Company operates a Dividend Reinvestment Plan (DRP) under which eligible holders of ordinary shares are able to reinvest all or part of their dividend payments into additional fully paid Coles Group Limited shares.

Franking account

2021 2020 $M $M Total franking credits available for subsequent periods based on a tax rate of 30% (2020: 30%) 420 408

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4. FINANCIAL RISK

This section details the Group’s exposure to various financial risks, explains how these risks may impact the Group’s financial performance or position, and details the Group’s approach to managing these risks.

4.1 Impairment of non-financial assets

The Group tests property, plant and equipment and intangible assets for impairment to ensure they are not carried above their recoverable

amounts: Overview

• at least annually for goodwill • where there is an indication that assets may be impaired (which is assessed at least at each reporting date).

These tests are performed by assessing the recoverable amount of each individual asset or, if this is not possible, the recoverable amount of Review Financial and Operating the cash generating unit (CGU) to which the asset belongs. CGUs are the lowest levels at which assets are grouped and generate separately identifiable cash inflows. The recoverable amount, measured at the asset or CGU level, is the higher of fair value less costs of disposal (FVLCOD), or value in use (VIU). A discounted cash flow model is used to determine the recoverable amount under both FVLCOD and VIU. FVLCOD is based on a market participant approach and is estimated using assumptions that a market participant would use when pricing the asset or CGU. VIU is determined by discounting the future cash flows expected to be generated from the continuing use of an asset or CGU.

Key estimate: Assessment of recoverable amount FVLCOD valuations are considered Level 3 in the fair value hierarchy due to the use of unobservable inputs in the calculation. The assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources. VIU calculation represent management’s best estimate of the economic conditions that will Report Directors’ exist over the remaining useful life of the asset or CGU in its current condition.

Both FVLCOD and VIU calculations use judgements and estimates. In particular, significant judgements and estimates are made in relation to the following:

Forecast future cash flows

Forecast future cash flows are based on the Group’s latest Board approved internal five-year forecasts and reflect management’s Remuneration Report best estimate of income, expenses, capital expenditure and cash flows for each asset or CGU. Internal forecasts have considered the ongoing impacts of the COVID-19 pandemic on income and expenses. Changes in selling prices and direct costs are based on past experience and management’s expectation of future changes in the markets in which the Group operates.

In addition, consideration has been given to the potential financial impacts of climate change related risks on the carrying value of goodwill through a qualitative review of the Group’s climate change risk assessment. This review did not identify any material financial reporting impacts. Financial Report When calculating the FVLCOD of an asset or CGU, future forecast cash flows also incorporate reasonably available market participant assumptions such as enhancement capital expenditure.

Discount rates

Estimated future cash flows are discounted to their present value using discount rates that reflect the Group’s weighted average cost of capital, adjusted for risks specific to the asset or CGU. The rates have been calculated in conjunction with independent valuation

experts. Shareholder Information

Expected long-term growth rates

Cash flows beyond the five-year period are extrapolated using estimated long-term growth rates. The growth rates are based on historical performance as well as expected long-term market operating conditions specific to each asset or CGU and with reference to long-term average industry growth rates. Growth rates have been calculated with the assistance of independent valuation experts.

The judgements and estimates used in assessing impairment are best estimates based on current and forecast market conditions and are subject to change in the event of shifting economic and operational conditions. Actual cash flows may therefore differ from forecasts and could result in changes to impairment recognised in future periods.

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4.1 Impairment of non-financial assets (continued)

For the period ended 27 June 2021, a net impairment reversal for non-financial assets of $3 million was recognised. This amount includes a $9 million net impairment reversal ($24 million reversal partly offset by $15 million impairment expense) relating to the Group’s property portfolio. The impairment reversal arose from the disposal of a number of the Group’s properties during the period to the extent that an impairment loss had previously been recognised with respect to the properties disposed.

The net impairment is included in ‘administration expenses’ in the Income Statement as it relates to the day-to-day management of the Group’s freehold property portfolio (included within ‘Other’ for segment reporting purposes).

For the period ended 28 June 2020, a net impairment reversal for non-financial assets of $41 million was recognised, of which $44 million ($52 million reversal offset by $8 million impairment expense) related to the Group’s property portfolio. This has been included in ‘administration expenses’ in the Income Statement and within ‘Other’ for segment reporting purposes.

Recognised impairment

An impairment loss is recognised in the Income Statement if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of other assets in the CGU.

Reversal of impairment

Where there is an indication that previously recognised impairment losses may no longer exist or may have decreased, the asset is re-tested for impairment. The impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment been recognised. Impairments recognised for goodwill are not reversed.

Goodwill impairment testing

For the purpose of impairment testing, goodwill is allocated to CGUs or groups of CGUs according to the level at which management monitors goodwill. The FVLCOD valuation methodology was applied to determine the recoverable amount of CGUs.

The following table presents a summary of the goodwill allocation and the key assumptions used in determining the recoverable amount of each CGU:

2021 SUPERMARKETS LIQUOR EXPRESS Goodwill allocation ($m) 986 125 45 Indefinite life intangible assets ($m) - 27 - Post-tax discount rate (%) 7.5% 7.5% 7.8% Terminal growth rate (%) 2.7% 2.7% nil

For the period ended 28 June 2020, goodwill and indefinite life intangibles were allocated to CGUs on a consistent basis. A post-tax discount rate of 8.1% and a terminal growth rate of 3.0% for Supermarkets and Liquor were applied, along with a post-tax discount rate of 8.4% and a terminal growth rate of 2.0% for Express.

Sensitivity analysis is performed to determine the point at which the recoverable amount is equal to the carrying amount for each CGU. For the Group’s CGUs, based on current economic conditions and CGU performance, no reasonably possible change in a key assumption used in the determination of the recoverable value is expected to result in a material impairment.

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4.2 Financial risk management

The following note outlines the Group’s exposure to and management of financial risks. These arise from the Group’s requirement to access financing (bank debt, capital market debt and overdrafts), from the Group’s operational activities (cash, trade receivables and payables) and from instruments held as part of the Group’s risk management activities (derivative financial instruments).

The Group’s financial risk management is carried out by the Group Treasury function and governed by the Board-approved Treasury Policy

(the ‘Policy’). The Policy strictly prohibits speculative positions to be taken. Overview

Management of financial risks is undertaken by the Group in line with its risk management principles and includes the following key steps: risk identification, risk measurement, setting risk tolerances and hedging objectives, strategy design and strategy implementation.

The Policy requires periodic reporting of financial risks to the Board, and its application is subject to oversight from the Chief Financial Officer Review Financial and Operating and the Chair of the Audit and Risk Committee.

The Policy allows the use of various derivatives to hedge financial risks and provides guidance in relation to volume and tenor of these instruments.

In the normal course of business, the Group is exposed to various risks as set out below:

RISK EXPOSURE MANAGEMENT Market risks Interest rate risk The Group’s exposure to interest rate The Group manages interest rate risk by having access to both fixed risk relates primarily to interest-bearing and variable debt facilities. In line with the Policy, this risk is further liabilities where interest is charged at managed by hedging a portion of the variable rate debt exposures Report Directors’ variable rates. with derivative financial instruments to convert floating rate debt obligations to fixed rate obligations.

Foreign exchange risk The Group has exposure to foreign To manage foreign currency transaction risk, the Group hedges exchange risk principally arising from material foreign currency denominated expenditure at the time of purchases of inventory and capital the commitment and hedges a proportion of foreign currency

equipment denominated in foreign denominated forecast exposures (mainly relating to the purchase of Remuneration Report currencies. inventory) through the use of forward foreign exchange contracts.

Commodity price risk The Group is exposed to changes in To mitigate the variability of wholesale electricity prices, the Group commodity prices in respect to the utilises Power Purchase Arrangements (PPAs). price of electricity. Liquidity risk The Group is exposed to liquidity and Liquidity risk is measured under both normal market operating funding risk from operations and conditions and under a crisis situation which curtails cash flows for

external borrowings. an extended period. This approach is designed to ensure that the Financial Report Group’s funding framework is sufficiently flexible to ensure liquidity Liquidity risk is the risk that unforeseen under a wide range of market conditions. events cause pressure on, or curtail, the Group’s cash flows. The Group regularly reviews its short, medium and long-term funding requirements. The Policy requires that sufficient committed Funding risk is the risk that sufficient funds are available to meet medium term requirements, with funds will not be available to meet the flexibility and headroom in the event a strategic opportunity should Shareholder Information Group’s financial commitments in a arise. The Group maintains a liquidity reserve in the form of undrawn timely manner. facilities of at least $1 billion.

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4.2 Financial risk management (continued)

RISK EXPOSURE MANAGEMENT Credit risk The Group is exposed to credit risk The majority of the Group’s sales are on a cash basis, and the from its financing activities, including Group’s exposure to credit risk from customer sales is therefore deposits with financial institutions and minimal. other financial instruments. The Group’s trade and other receivables relate largely to With respect to credit risk arising from commercial income due from suppliers and other receivables from cash and cash equivalents, trade and creditworthy third parties. other receivables and certain derivative instruments, the Group’s Counterparty limits, credit ratings and exposures are actively exposure arises from default of the managed in accordance with the Policy. The Group’s exposure to counterparty. bad debts is not significant, and default rates have historically been very low. The credit quality of trade and other receivables neither Credit risk for the Group also arises past due nor impaired has been assessed as high on the basis of from various financial guarantees in credit ratings (where available) or historical information about which members of the Group act as counterparty default. guarantor. Since the Group trades only with recognised creditworthy third parties, there is no requirement for collateral by either party.

The carrying amount of trade and other receivables and other financial assets in the Balance Sheet represents the Group’s maximum exposure to credit risk.

There is also exposure to credit risk where members of the Group have entered into guarantees, however the probability of being required to make payments under these guarantees is considered remote. Refer to Note 6.2 Contingent liabilities for further details.

Foreign exchange risk

The Group is primarily exposed to foreign exchange risk in relation to the United States dollar (USD), the Euro (EUR) and the British Pound (GBP). The Group considers its exposure to USD, EUR and GBP arising from purchases to be a long-term and ongoing exposure that is highly probable.

The table below sets out the total forward exchange contracts at the reporting date and the carrying value of the derivative asset / (liability) positions:

NOTIONAL VALUE CARRYING VALUE WEIGHTED AVERAGE HEDGE RATE 2021 2020 2021 2020 2021 2020 BUY / SELL $M $M $M $M USD / AUD 56 72 1 - 0.77 0.69 EUR / AUD 291 411 (26) (20) 0.58 0.58 GBP / AUD 36 46 1 (1) 0.55 0.54 AUD / USD (3) - - - 0.76 -

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At the reporting date, the Group has the following exposures to USD, EUR and GBP:

USD $M EUR €M GBP £M 2021 2020 2021 2020 2021 2020 Financial assets Cash and cash equivalents 4 4 - - Trade receivables 6 - - - - - Forward exchange contracts 44 49 1681 237 20 25

Financial liabilities Overview Trade and other payables (31) (63) (13) (21) (4) (5) Forward exchange contracts (3) - - - - Net exposure 20 (10) 155 216 16 20

1 EUR forward exchange contracts of $137 million (2020: $191 million) relate to capital commitments. The remaining contracts hedge current and future trade Review Financial and Operating payables denominated in EUR.

Foreign exchange rate sensitivity

At the reporting date, had the Australian dollar moved against the USD, EUR and GBP (with all other variables held constant), the Group’s post-tax profit and OCI would have been affected by the change in value of its financial assets and financial liabilities.

The following sensitivities are based on the foreign exchange risk exposures in existence at the reporting date and the determination of reasonably possible movements based on management’s assessment of reasonable fluctuations:

POST-TAX PROFIT INCREASE POST-TAX OCI INCREASE (DECREASE): (DECREASE): Directors’ Report Directors’ 2021 2020 2021 2020 RATE CHANGE $M $M $M $M AUD / USD +10% - 2 (2) (1) -10% - (2) 2 1 AUD / EUR +10% - - (15) (22) -10% - - 18 27

AUD / GBP +10% - - (2) (2) Remuneration Report -10% - - 2 3

Interest rate risk

At the reporting date, the Group has the following financial assets and liabilities exposed to variable interest rate risk that, with the exception of interest rate swaps, are not designated as cash flow hedges:

2021 2020 Financial Report WEIGHTED WEIGHTED AVERAGE AVERAGE INTEREST INTEREST EXPOSURE RATE EXPOSURE RATE $M % $M % Financial assets

Cash at bank and on deposit 211 0.3 452 0.6 Shareholder Information Financial liabilities Bank debt (100) (1.4) (760) (1.3) Capital market debt (150) (1.0) - - Less: interest rate swaps (notional principal amount) 150 1.8 250 (1.6) Net exposure to cash flow interest rate risk 111 (58)

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4.2 Financial risk management (continued)

Interest rate sensitivity

A 100 basis point increase represents management’s assessment of the reasonably possible change in interest rates. Based on the variable interest rate exposures in existence at the reporting date, if interest rates increased by 100 basis points, with all other variables held constant, the impact would be:

POST-TAX PROFIT INCREASE POST-TAX OCI INCREASE (DECREASE): (DECREASE): 2021 2020 2021 2020 $M $M $M $M Impacts of reasonably possible movements: +1.0% (100 basis points) 1 - 4 6

Liquidity risk

The Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank debt with a variety of counterparties.

The committed facilities of the Group are set out below:

2021 2020 $M $M Financing facilities available: Bank overdrafts 13 13 Revolving multi-option facilities 2,715 2,640 Term loan facilities 100 660 2,828 3,313 Financing facilities utilised: Revolving multi-option facilities - 100 Guarantees issued1 322 358 Term loan facilities 100 660 422 1,118 Financing not utilised: Bank overdrafts 13 13 Revolving multi-option facilities1 2,393 2,182 2,406 2,195

1 As at 27 June 2021, bank guarantees totalling $322 million (2020: $358 million) have been issued on behalf of the Company through the revolving multi-option facilities. While the Company has entered into these guarantees, the probability of having to make payments under these guarantees is considered remote.

The Group holds $787 million cash and cash equivalents at the reporting date (2020: $992 million).

Assets pledged as security

A controlled entity has issued a floating charge over assets, capped at $80 million (2020: $80 million), as security for payment obligations for fuel sales collected on behalf of Viva in accordance with the New Alliance Agreement. The assets are, therefore, excluded from financial covenants in all debt documentation.

Maturity analysis

The table below sets out the Group’s financial liabilities across the relevant maturity periods based on their contractual maturity date. At the reporting date, the remaining undiscounted contractual maturities of the Group’s financial liabilities and their carrying amounts are as follows:

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TOTAL CONTRACTUAL CARRYING < 12 MONTHS 1-2 YEARS 2-5 YEARS > 5 YEARS CASH FLOWS AMOUNT $M $M $M $M $M $M 2021 Trade and other payables (less accrued interest) 3,652 - - - 3,652 3,652 Bank debt (principal and interest) 14 10 106 - 130 100

Capital market debt Overview (principal and interest) 22 22 216 960 1,220 1,048 Lease liabilities 1,244 1,210 3,334 4,987 10,775 8,756 Interest rate swaps 3 3 4 - 10 7

Forward exchange contracts 11 13 - - 24 24 Review Financial and Operating Power Purchase Arrangement (1) (1) 1 3 2 9 Total 4,945 1,257 3,661 5,950 15,813 13,596

2020 Trade and other payables (less accrued interest) 3,737 - - - 3,737 3,737 Bank debt (principal and interest) 21 19 633 151 824 760 Capital market debt (principal and interest) 15 15 44 646 720 598 Lease liabilities 1,250 1,219 3,325 5,592 11,386 9,083 Directors’ Report Directors’ Interest rate swaps 4 2 7 - 13 11 Forward exchange contracts 6 8 7 - 21 21 Total 5,033 1,263 4,016 6,389 16,701 14,210

For variable rate instruments, the amount disclosed is determined by reference to the interest rate at the last re-pricing date. Contractual cash flows are undiscounted and as such will not necessarily agree with their carrying amounts.

Changes in liabilities arising from financing activities Remuneration Report

AT BEGINNING CHANGES IN LEASES AT END OF OF PERIOD CASH FLOWS FAIR VALUE RECOGNISED OTHER PERIOD NOTE $M $M $M $M $M $M 2021 Bank debt 3.1 758 (660) - - - 98 Capital market debt 3.1 596 448 - - - 1,044 Lease liabilities 2.7 9,083 (1,281) - 564 390 8,756 Financial Report Derivatives 4.3 32 - 10 - - 42 Total liabilities from financing activities 10,469 (1,493) 10 564 390 9,940

2020

Bank debt 3.1 1,460 (702) - - - 758 Shareholder Information Capital market debt 3.1 - 596 - - - 596 Lease liabilities 2.7 8,856 (1,245) - 1,073 399 9,083 Derivatives 4.3 19 - 13 - - 32 Total liabilities from financial activities 10,335 (1,351) 13 1,073 399 10,469

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4.3 Financial instruments

Financial assets and liabilities measured at fair value

The following table sets out the fair value measurement hierarchy of the Group’s derivative financial instruments:

LEVEL 2 FAIR VALUE HIERARCHY 2021 2020 ASSET LIABILITY ASSET LIABILITY Cash flow hedges Forward exchange contracts 2 (26) 1 (22) Interest rates swaps - (7) - (11) Power Purchase Agreement - (9) - (3)

The Group measures certain financial instruments, such as derivatives, at fair value at each reporting date. Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole.

LEVEL 1 Fair value is calculated using quoted prices in active markets for identical assets or liabilities LEVEL 2 Fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) LEVEL 3 Fair value is estimated using inputs for the asset or liability that are not based on observable market data (unobservable inputs)

All of the Group’s financial instruments carried at fair value were valued using market observable inputs (Level 2).

For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

There were no transfers between Level 1 and Level 2 during the period. The Group does not hold any material Level 3 financial instruments.

Derivatives

The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Foreign exchange forward contracts, interest rate swap contracts and power purchase agreements are valued using forward pricing techniques. This includes the use of market observable inputs, such as foreign exchange spot and forward rates, yield curves of the respective currencies, interest rate curves and electricity futures. Accordingly, these derivatives are classified as Level 2.

Carrying amounts versus fair values

The carrying amounts and fair values of the Group’s financial assets and financial liabilities recognised in the financial statements are materially the same.

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Offsetting of financial assets and liabilities

The Group presents its derivative assets and liabilities on a gross basis, with the exception of derivative financial instruments which it intends to settle on a net basis and which are subject to enforceable master netting arrangements, such as an International Swaps and Derivatives Association (ISDA) master netting agreement. In certain circumstances, for example when a credit event such as default occurs, all outstanding transactions under an ISDA agreement are terminated. The termination value is assessed, and only a single net amount is payable in settlement of all transactions.

Commercial income due from suppliers is recognised within trade receivables, except in cases where the Group currently has a legally

enforceable right of set-off and the intention to settle on a net basis, in which case only the net amount receivable or payable is recognised. Overview

The following table sets out the Group’s financial assets and financial liabilities which have been offset in the Balance Sheet at the reporting date:

GROSS FINANCIAL NET FINANCIAL ASSETS /

GROSS FINANCIAL (LIABILITIES) / ASSETS (LIABILITIES) PRESENTED Review Financial and Operating ASSETS / (LIABILITIES) SET OFF IN THE BALANCE SHEET $M $M $M 2021 Trade and other receivables 490 (122) 368 Trade and other payables (3,782) 122 (3,660) 2020 Trade and other receivables 560 (126) 434 Trade and other payables (3,863) 126 (3,737)

Hedge accounting Directors’ Report Directors’ Where the Group undertakes a hedge transaction it documents at the inception of the transaction the type of hedge, the relationship between hedging instruments and hedged items and its risk management objective and strategy for undertaking the hedge. The documentation also demonstrates, both at hedge inception and on an ongoing basis, that the hedge has been, and is expected to continue to be, highly effective.

The Group uses derivative financial instruments for cash flow hedging purposes and designates them as such. Remuneration Report Cash flow hedge Derivatives or other financial instruments that hedge the exposure to variability in cash flows attributable to a particular risk associated with an asset, liability or forecast transaction.

The Group uses cash flows hedges to mitigate the risk of variability of:

• future cash flows attributable to foreign currency fluctuations over the hedging period where the Group has highly probable purchase or settlement commitments denominated in foreign currencies; and

• interest rate fluctuations over the hedging period where the Group has variable rate debt Financial Report obligations.

Recognition date The date the hedging instrument is entered into

Measurement Fair value

Changes in fair value Changes in the fair value of derivatives designated as cash flow hedges are recognised directly in OCI

and accumulated in equity in the hedging reserve to the extent that the hedge is highly effective. To Shareholder Information the extent that the hedge is ineffective, changes in fair value are recognised immediately in the Income Statement.

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5. Group structure

This section provides information relating to subsidiaries and other material investments of the Group.

5.1 Equity accounted investments

OWNERSHIP INTEREST PLACE OF NAME OF COMPANY PRINCIPAL ACTIVITY INCORPORATION TYPE 2021 2020 Loyalty Pacific Pty Ltd Operator of the flybuys Australia Joint Venture 50% 50% loyalty program Queensland Venue Operator of Spirit Hotels Australia Associate 50% 50% Co. Pty Ltd (QVC) and Queensland retail liquor business

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. An associate is an entity that is not controlled or jointly controlled by the Group, but over which the Group has significant influence.

The Group accounts for its investments in joint ventures and associates using the equity method of accounting. Under the equity method, the investment in a joint venture or associate is initially recognised at cost. Thereafter, the carrying amount of the investment is adjusted to recognise the Group’s share of profit after tax of the joint venture or associate, which is recognised in profit or loss. The Group’s share of OCI is recognised within Other Comprehensive Income. Dividends received from a joint venture or associate reduce the carrying amount of the investment.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss for its investment in a joint venture or associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture or associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture or associate and its carrying value. Any impairment loss will be recognised within ‘share of net profit of equity accounted investments’ in the Income Statement.

Key judgement: Control and significant influence The Group has a number of management agreements relating to its joint venture and associate investments which it considers when determining whether it has control, joint control or significant influence. The Group assesses whether it has the power to direct the relevant activities of the investee by considering the rights it holds to appoint or remove key management and the decision-making rights and scope of powers specified in the agreements.

The Group’s interests in Loyalty Pacific Pty Ltd and QVC are accounted for using the equity method of accounting in the Balance Sheet.

Loyalty pacific pty ltd

A reconciliation of the carrying amount of the Group’s investment in Loyalty Pacific Pty Ltd is set out below:

2021 2020 $M $M At beginning of period 16 11 Additions 8 11 Loss for the period (5) (6) At end of period 19 16

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Queensland Venue Co. Pty Ltd

In FY19, the Company entered into an incorporated joint venture with Australian Venue Co. (AVC) for the operation of Spirit Hotels (the ‘Hotel business’) and the retail liquor stores linked to Spirit Hotels venues (collectively the ‘Retail Liquor business’). An incorporated joint venture company, QVC was established. Under the joint venture documents, the Company holds all R-shares in QVC and operates the Retail Liquor business through its wholly-owned subsidiary, Liquorland (Australia) Pty. Ltd. (LLA).

For accounting purposes, LLA is considered the principal in relation to retail liquor sales due to its exposure to the economic risks and benefits associated with the Retail Liquor business. Accordingly, LLA recognises revenue from retail liquor sales by QVC directly in its Income

Statement. Revenue recognised by QVC relates solely to Spirit Hotels. Overview

Furthermore, due to the application of service fees and cost recoveries between the Company and QVC, net profit relating to the Retail Liquor business as recognised by QVC is nominal.

A reconciliation of the carrying amount of the Group’s investment in QVC is set out below: Operating and Financial Review Financial and Operating

2021 2020 $M $M At beginning of period 201 201 Additions - - Profit for the period - - At end of period 201 201

5.2 Assets held for sale

At 27 June 2021, six of the Group’s properties with a total carrying value of $85 million have been classified as held for sale (2020: $75 million). Report Directors’

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell.

The criteria for held for sale classification is met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. A sale is considered highly probable when actions required to complete the sale indicate that it is unlikely significant changes to the sale will be made or that the decision to sell will be withdrawn, and where management is committed to a plan to sell the asset and the sale is expected to be completed within one year from the date of the classification. Remuneration Report Financial Report Shareholder Information

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5.3 Subsidiaries

The ultimate parent of the Group is Coles Group Limited, a company incorporated in Australia. Subsidiaries are consolidated from the date of acquisition, being the date Coles Group Limited obtains control, and continue to be consolidated until the date control ceases. Control exists where the Group has the power to govern the financial and operating policies of the entity in order to obtain benefits from its activities.

Set out below are the subsidiaries of the Group. All entities were incorporated in Australia and wholly-owned unless stated otherwise.

Andearp Pty Ltd Coles Retail Services Pty Ltd Australian Liquor Group Ltd * Coles Supermarkets Australia Pty Ltd * Bi-Lo Pty. Limited * Coles Trading (Shanghai) Co. Limited (incorporated in China) Charlie Carter (Norwest) Pty Ltd Coles WFS Pty Ltd (formerly Wesfarmers Finance Pty Ltd) Chef Fresh Pty Ltd CSA Retail (Finance) Pty Ltd CMPQ (CML) Pty Ltd e.colesgroup Pty Ltd Coles Ansett Travel Pty Ltd (97.5%) Eureka Operations Pty Ltd * Coles Export Asia Limited (incorporated in Hong Kong) GBPL Pty Ltd Coles Export Australia Pty Ltd (formerly Tooronga Holdings Pty Ltd) * Grocery Holdings Pty Ltd * Coles Financial Services Pty Ltd Katies Fashions (Aust) Pty Limited Coles FS Holding Company Pty Ltd (formerly Wesfarmers Finance Holding Company Pty Ltd) Liquorland (Australia) Pty. Ltd * Coles Group Deposit Services Pty Ltd Newmart Pty Ltd Coles Group Finance Limited * Procurement Online Pty Ltd Coles Group Properties Holdings Ltd * Retail Ready Operations Australia Pty. Ltd * Coles Group Property Developments Ltd * Richmond Plaza Shopping Centre Pty Ltd Coles Group Superannuation Fund Pty Ltd Tickoth Pty Ltd Coles Group Supply Chain Pty Ltd * WFPL Funding Co Pty Ltd Coles Group Treasury Pty Ltd (formerly Coles Group Payments Pty Ltd) * WFPL No 2 Pty Ltd Coles Online Pty Ltd * WFPL Security SPV Pty Ltd Coles Property Management Pty Ltd WFPL SPV Pty Ltd Entities formed/incorporated or acquired during the financial year Coles Captive Insurance Pte. Ltd. (incorporated in Singapore) CNSCE Pty Ltd

* These entities are parties to the Deed of Cross Guarantee and are members of the Closed Group as at 27 June 2021.

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Deed of cross guarantee

Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (‘ASIC Instrument’) the wholly-owned subsidiaries listed on the previous page (*) are relieved from the Corporations Act 2001(Cth) requirements for preparation, audit and lodgement of financial reports, and Directors’ Reports.

As a condition of the ASIC Instrument, the Company and the subsidiaries listed on the previous page have entered into a Deed of Cross Guarantee (the Deed). The effect of the Deed is that the Company guarantees to pay any deficiency in the event of winding up any controlled entity, or if they do not meet their obligations under the terms of any overdrafts, loans, leases or other liabilities subject to the guarantee. The

controlled entities have also given a similar guarantee in the event that the Company is wound up or if it does not meet its obligations under Overview the terms of any overdrafts, loans, leases or other liabilities subject to the guarantee.

An Income Statement and retained earnings and a Balance Sheet, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between the parties to the Deed, for the period are set out below: Operating and Financial Review Financial and Operating Income Statement and retained earnings

CLOSED GROUP 2021 2020 $M $M Sales revenue 38,562 37,408 Other operating revenue 370 376 Total operating revenue 38,932 37,784 Cost of sales (28,764) (28,048) Gross profit 10,168 9,736 Other income 110 114 Report Directors’ Administration expenses (8,391) (8,076) Share of net loss from equity accounted investments (5) (6) Earnings before interest and tax 1,882 1,768 Financing costs (427) (443) Profit before income tax 1,455 1,325 Income tax expense (443) (337) Remuneration Report Profit for the period 1,012 988 Items that may be reclassified to profit or loss: Net movement in the fair value of cash flow hedges (9) (17) Income tax effect 3 5 Other comprehensive income which may be reclassified to profit or loss in subsequent periods (6) (12) Total comprehensive income for the period 1,006 976 Retained earnings Retained earnings at beginning of period 1,040 1,756 Financial Report Effect of adoption of AASB 16 Leases - (831) Profit for the period 1,012 988 Dividends paid (807) (873) Retained earnings at end of period 1,245 1,040 Shareholder Information

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5.3 Subsidiaries (continued)

Balance Sheet

CLOSED GROUP 2021 2020 $M $M Assets Current assets Cash and cash equivalents 778 992 Trade and other receivables 357 434 Inventories 2,102 2,161 Income tax receivable - 43 Assets held for sale 85 75 Other assets 87 69 Total current assets 3,409 3,774

Non-current assets Property, plant and equipment 4,423 4,091 Right-of-use assets 7,283 7,655 Intangible assets 1,695 1,594 Deferred tax assets 869 847 Investment in subsidiaries 249 238 Equity accounted investments 220 217 Other assets 147 120 Total non-current assets 14,886 14,762 Total assets 18,295 18,536

Liabilities Current liabilities Trade and other payables 3,756 3,858 Income tax payable 62 - Provisions 947 858 Lease liabilities 897 884 Other 252 198 Total current liabilities 5,914 5,798

Non-current liabilities Interest-bearing liabilities 1,142 1,354 Provisions 457 472 Lease liabilities 7,854 8,193 Other 29 25 Total non-current liabilities 9,482 10,044 Total liabilities 15,396 15,842 Net assets 2,899 2,694

Equity Contributed equity 1,585 1,611 Reserves 69 43 Retained earnings 1,245 1,040 Total equity 2,899 2,694

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5.4 Parent entity information

Summary financial information for the Company is set out below:

2021 2020 $M $M Profit for the period 284 293 Dividends received - 2,974 Profit for the period (after dividends) 284 3,267 Overview Other comprehensive income - - Total comprehensive income for the period 284 3,267

2021 2020 Review Financial and Operating $M $M Assets Current assets 3,390 3,840 Non-current assets 5,102 5,090 Total assets 8,492 8,930

Liabilities Current liabilities 1,020 1,059 Non-current liabilities 2,775 2,669

Total liabilities 3,795 3,728 Report Directors’

Equity Contributed equity 1,585 1,611 Reserves 80 36 Retained earnings 3,032 3,555 Total equity 4,697 5,202 Remuneration Report As at 27 June 2021, the Company has no guarantees in relation to the debts of its subsidiaries (2020: $nil).

As at 27 June 2021, the Company has no contingent liabilities (2020: $nil). As at 27 June 2021, the Company has bank guarantees totalling $290 million (2020: $324 million).

As at 27 June 2021, the Company has contractual commitments for the acquisition of property, plant and equipment totalling $349 million (2020: $512 million). Financial Report Shareholder Information

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6. Unrecognised items

This section provides information about items that are not recognised in the consolidated financial statements but could potentially have a significant impact on the Group’s financial performance or position in the future.

6.1 Commitments

A commitment represents a contractual obligation to make a payment in the future. The Group’s commitments relate to capital expenditure and certain operating leases not recognised. Commitments are not recognised in the Balance Sheet, but are disclosed.

Capital expenditure commitments of the Group at the reporting date are set out below:

2021 2020 $M $M Within one year 244 264 Between one and five years 177 378 Total capital commitments for expenditure 421 642

The commitment amounts disclosed above represent the maximum amounts that the Group is obliged to pay.

At 27 June 2021, the Group also has commitments relating to lease agreements that have not yet commenced. The future lease payments (undiscounted) for non-cancellable periods are $21 million within one year, $457 million between one and five years and $1,748 million thereafter (2020: $21 million within one year, $474 million between one and five years and $1,914 million thereafter). The commitments relate to lease agreements associated with new stores, the Supply Chain Modernisation program and online fulfilment centres.

6.2 Contingent liabilities

Contingent liabilities are potential future cash outflows where the likelihood of payment is more than remote but is not considered probable or cannot be reliably measured. Contingent liabilities are not recognised in the Balance Sheet but are disclosed.

In February 2020 Coles announced it was conducting a review into the pay arrangements for team members who receive a salary and are covered by the General Retail Industry Award 2010 (GRIA). A provision of $20 million was recognised in FY20 in relation to this matter. Following the announcement in February 2020, the Fair Work Ombudsman (FWO) commenced an investigation which is ongoing. The potential outcomes of this investigation are uncertain as at the date of this report.

In May 2020, Coles was notified that a class action proceeding had been filed in the Federal Court of Australia in relation to payment of Coles managers employed in supermarkets. Coles is defending the proceeding. The potential outcome and total costs associated with this matter remain uncertain as at the date of this report.

From time to time, entities within the Group are party to various legal actions as well as inquiries from regulators and government bodies that have arisen in the ordinary course of business. Consideration has been given to such matters and it is expected that the resolution of these contingencies will not have a material impact on the financial position of the Group, or are not at a stage to support a reasonable evaluation of the likely outcome.

Key estimate: Contingent liabilities

Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or non-occurrence of uncertain future events outside the Group’s control, or present obligations that are not recognised because it is not probable that a settlement will be required or the value of such a payment cannot be reliably estimated.

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7. Other disclosures

This section provides other disclosures required by Australian Accounting Standards that are considered relevant to understanding the Group’s financial performance or position.

7.1 Related party disclosures

2021 2020

$M $M Overview Joint ventures and associates Loyalty Pacific Pty Ltd Sale of goods to members of flybuys 140 134

Purchase of points from Loyalty Pacific Pty Ltd 299 228 Review Financial and Operating Amounts owing to Loyalty Pacific Pty Ltd 212 201 Queensland Venue Co. Pty Ltd Sales of inventory to QVC - 3 Service fees paid to QVC 55 56 Amounts receivable from QVC 25 32

Transactions with Key Management Personnel (KMP)

Compensation of KMP of the Group:

2021 2020 Report Directors’ $ $ Short-term employee benefits 10,043,343 11,800,881 Post-employment benefits 188,312 188,724 Other long-term benefits 325,493 (5,678) Share-based payments 7,070,757 5,096,297 Total compensation paid to key management personnel 17,627,905 17,080,224 Remuneration Report Terms and conditions of transactions with related parties

Sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the reporting date are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables.

The Group has not recognised a provision for expected credit losses relating to amounts owed by related parties (2020: $nil).

7.2 Employee share plans Financial Report

The Group operates an Equity Incentive Plan (the ‘Plan’) which provide equity instruments to employees as a component of their remuneration.

Long Term Incentive (LTI) Program

Refer to the Remuneration Report for the terms and conditions of the LTI program.

The fair value of Performance Rights under each performance measure is determined at grant date by an independent valuation expert and Shareholder Information takes into account the terms and conditions upon which they were granted. The fair value is recognised as an employee expense (with a corresponding increase in equity) over the vesting period.

For the relative total shareholder return (TSR) measure, the fair value is recognised as an expense irrespective of whether the Performance Rights vest to the holder, and a reversal of the expense is only recognised in the event the instruments lapse due to cessation of employment within the vesting period. For the return on capital (ROC) measure, the amount expensed is based on the expected number of Performance Rights vesting, with the ultimate expense reflecting the actual Performance Rights that vest.

Short Term Incentive (STI)

For Executives, 25% of their STI is deferred into Restricted Shares (50% for the Managing Director and Chief Executive Officer) and are subject to a one-year service condition (two years for the Managing Director and Chief Executive Officer). The cost of the deferred STI is based on the market price at grant date and is recognised as an employee expense (with a corresponding increase in equity) over the vesting period.

Further explanation of the deferred STI is disclosed in the Remuneration Report.

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7.2 Employee share plans (continued)

Restricted share offer

Restricted Shares are subject to a continued service condition, a three-year trading restriction period and cessation of employment provisions. During the trading restriction period, Restricted Shares are held in trust by the Trustee on behalf of the employee. The number of Restricted Shares to be granted is determined based on the currency value of the achieved Restricted Share offer divided by the volume weighted average price (VWAP) at which the Company’s shares are traded on the Australian Stock Exchange over the period outlined in the offer letter. The value of Restricted Shares granted is recognised as an employee expense (with a corresponding increase in equity) over the vesting period.

Restricted Shares carry the same dividend and voting rights as other fully paid ordinary Shares in the Company.

Performance Rights (number)

Movements in Performance Rights granted under the LTI program that existed during the current or prior period are:

BALANCE AT BALANCE AT EXERCISABLE AT GRANT DATE 29 JUNE 2020 GRANTED FORFEITED VESTED 27 JUNE 2021 27 JUNE 2021 2021 Nov 2019 962,246 - - - 962,246 - May 2020 89,528 - - - 89,528 - Nov 2020 - 223,133 - - 223,133 - Nov 2020 - 772,930 - - 772,930 - 1,051,774 996,063 - - 2,047,837 -

BALANCE AT BALANCE AT EXERCISABLE AT GRANT DATE 1 JULY 2019 GRANTED FORFEITED VESTED 28 JUNE 2020 28 JUNE 2020 2020 Nov 2019 - 962,246 - - 962,246 - May 2020 - 89,528 - - 89,528 - - 1,051,774 - - 1,051,774 -

Fair value of equity instruments

The assumptions underlying the fair value measurement of the performance rights are:

EXPECTED SHARE PRICE AT VOLATILITY IN EXPECTED RISK FREE FAIR VALUE PER GRANT DATE SHARE PRICE1 DIVIDEND YEILD INTEREST RATE2 INSTRUMENT GRANT DATE EXPIRY DATE $ % % % $ Nov 2019 Aug 2022 16.26 25.0 3.90 0.65 12.58 May 2020 Aug 2022 15.02 25.0 4.20 0.25 12.92 Nov 2020 Aug 2023 18.26 25.0 3.68 0.10 13.52 Nov 2020 Aug 2023 17.95 25.0 3.68 0.11 12.67

1 Reflects the assumption that the historical volatility is indicative of future trends. 2 Represents the zero coupon interest rate derived from government bond market interest rates on the valuation date and vary according to each maturity date.

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Additional information on award schemes

Details of grants made under the Plan during the period are set out in the Remuneration Report.

Key estimate: Share-based payments The fair value of share-based payment transactions has been determined by an independent valuation expert.

Estimating the fair value of share-based payment transactions requires the determination of the most appropriate valuation model,

which depends on the terms and conditions of the grant. Assumptions regarding the most appropriate inputs to the valuation model Overview must be made. This includes, but is not limited to, share price volatility, discount rate and dividend yield.

In measuring the fair value of awards issued under the Long-Term Incentive (LTI) plan subject to the relative total shareholder return (TSR) vesting condition, an adjusted form of the Black-Scholes Model that includes a Monte Carlo Simulation Model has been utilised. The Monte Carlo Simulation Model has been modified to incorporate an estimate of the probability of achieving the TSR hurdle. In Review Financial and Operating measuring the fair value of awards subject to non-market based vesting conditions, the Black-Scholes Model has been utilised.

7.3 Auditor’s remuneration

2021 2020 $000 $000 Fees to Ernst & Young (Australia): Audit services: Audit or review of the Financial Report of the Group 2,738 2,631 Assurance related 709 7011 Report Directors’ Non-audit services: Tax compliance services 69 135 Total fees to Ernst & Young (Australia) 3,516 3,467

Fees to overseas member firms of Ernst & Young: Audit services: Remuneration Report Audit or review of the Financial Report of any controlled entities 57 - Total fees to overseas member firms of Ernst & Young 57 - Total auditor’s remuneration 3,573 3,467

1 Certain FY20 services were in progress at the time of disclosure. These amounts have now been updated following completion of these services in FY21.

The auditor of the Group is Ernst & Young (EY). Fees charged by EY for ‘Assurance related services’ are for services that are reasonably related to the performance of the audit or review of financial reports, for other assurance engagements (such as assurance over the Group’s

Sustainability Report) and for other assurance related engagements which are appropriate for our external auditor to perform. Financial Report

The total fees for non-audit services of $69,000 represent 1.9% (2020: 3.9%) of the total fees paid or payable to EY and related practices for the period.

7.4 New accounting standards and interpretations

There are amendments and interpretations that apply for the first time in this period. These did not have a material impact on the consolidated financial statements of the Group. Shareholder Information

New and revised Australian Accounting Standards and interpretations on issue but not yet effective

There are no standards that are not yet effective that would be expected to have a material impact on the Group in the current or future reporting periods.

7.5 Events after the reporting period

Other than events disclosed elsewhere in this report, the Group is not aware of any matter or circumstance that has occurred since the reporting date that has significantly affected or may significantly affect the Group’s operations, the results of those operations or the Group’s state of affairs in subsequent reporting periods.

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Directors’ Declaration

1. The directors of Coles Group Limited (the Company) declare that, in the directors’ opinion:

(a) the financial statements and the Notes are in accordance with the Corporations Act 2001 (Cth), including:

(i) complying with the accounting standards and Corporations Regulations 2001; and

(ii) giving a true and fair view of the financial position and performance of the Company and its consolidated entities;

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. A statement of compliance with the International Financial Reporting Standards is included in the Basis of Preparation and Accounting Policies in the Notes to the consolidated financial statements.

3. The directors have been given the declaration required by section 295A of the Corporations Act 2001 (Cth) from the Managing Director and Chief Executive Officer and Chief Financial Officer for the financial year ended 27 June 2021.

4. As at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note 5.3 Subsidiaries to the financial statements will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in Note 5.3 Subsidiaries.

Signed in accordance with a resolution of the directors.

James Graham AM Steven Cain Chairman Managing Director and Chief Executive Officer

18 August 2021 18 August 2021

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Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPOErnst Box& Young 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited Overview ReportIndependent on the AAudituditor's of the R eportFinancial to the Report Members of Coles Group Limited

OpinionReport on the Audit of the Financial Report Operating and Financial Review Financial and Operating OpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries (collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the CWeonsolidated have audited Income the FStatementinancial Report, Consolidated of Coles GroupStatement Limited of O (thether Company) Comprehensive and its I ncome,subsidiaries C(collectivelyonsolidated, theStatement Group), of which Changes comprises in Equity the andConsolidated Consolidated Balance Cash Sheet Flow Statementas at 27 June for the202 year1, the then ended,Consolidated notes toIncome the consolidated Statement, Cfinancialonsolidated statements Statement, including of Other a summaryComprehensive of significant Income, accounting policiesConsolidated, and theStatement Directors' of DChangeseclaration. in E quity and Consolidated Cash Flow Statement for the year then ended, notes to the consolidated financial statements, including a summary of significant accounting policiesIn our opinion,, and the the D irectors'accompanying Declaration. Financial Report of the Group is in accordance with the Corporations Act 2001, including: In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations

Act(a) 2001giving, aincluding: true and fair view of the consolidated financial position of the Group as at 27 June 2021 Report Directors’ and of its consolidated financial performance for the year ended on that date; and (a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021 (b) andcomplying of its consolidated with Australian financial Accounting performance Standards for andthe yearthe Corporations ended on that Regulations date; and 2001.

(b)Basis complying for Opinion with Australian Accounting Standards and the Corporations Regulations 2001.

WeBasis conducted for Opinion our audit in accordance with Australian Auditing Standards. Our responsibilities under Remuneration Report those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial ReportWe conducted section ourof our audit report. in accordance We are independent with Australian of the Auditing Group inStandards. accordance Our with responsibilities the auditor under independencethose standards requirements are further describedof the Corporations in the Auditor’s Act 2001 Responsibi and thelities ethical for therequirements Audit of the of Financial the AccountingReport section Professional of our report. and EthicalWe are Standardsindependent Board’s of the APES Group 110 in accordance Code of Ethics with for the Professional auditor Accountantsindependence (including requirements Independence of the Corporations Standards) Act (the 2001 Code) and that the are ethical relevant requirements to our audit of of the the FAccountinginancial Report Professional in Australi anda. EthicalWe have Standards also fulfilled Board’s our otherAPES ethical110 Code responsibilities of Ethics for inProfessional accordance withAccountants the Code. (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance Financial Report Wewith believe the Code. that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Keyfor our Audit opinion. Matters

Key audit Audit matters Matters are those matters that, in our professional judgement, were of most significance in Shareholder Information our audit of the Financial Report of the current year. These matters were addressed in the context of ourKey auditaudit ofmatters the Financial are those Report matters as a that, whole, in ourand professionalin forming our judg opinionement, thereon, were of butmost we significance do not in ourprovide audit a ofseparate the Financial opinion R eporton these of the matters. current For year. each These matter matters below, were our descriptionaddressed inof the how context our audit of ouraddressed audit of the the matter Financial is provided Report asin athat whole, context. and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit Weaddressed have fulfilled the matter the responsibilities is provided in thatdescribed context. in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit includedWe have thefulfilled performance the responsibilities of procedures described designed in the to respondAuditor’s to Responsibilities our assessment for of the the Audit risks of the materialFinancial misstatement Report section of of the our F inancialreport, includingReport. The in relation results ofto ourthese audit matters. procedures, Accordingly, including our the audit proceduresincluded the performed performance to address of procedures the matters designed below, to respondprovide theto our basis assessment for our audit of the opinion risks onof the accompanyingmaterial misstatement Financial of R theeport. Financial Report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation121

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Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited

1.Report Commercial on the income Audit of the Financial Report

OpinionWhy significant How our audit addressed the key audit matter

WeCommercial have audited income the (alsoFinancial referred Report to inof theColes GroupOur Limited audit procedures(the Company) in respect and its ofsubsidiaries commercial (retailcollectively industry, the as Group), “supplier which rebates”) comprises comprises the Consolidated income included Balance theSheet following: as at 27 June 2021, the discounts and rebates received by the Group Consolidated Income Statement, Consolidated Statement► We of gained Other anComprehensive understanding Income, of the nature from its suppliers. Consolidated Statement of Changes in Equity and Consolidatedof each Csignificantash Flow Statementtype of commercial for the year then ended,Determining notes ttohe the value consolidated and timing financial of when statements, includingincome and a summary assessed of a significantsample of accounting policiescommercial, and incomethe Directors' is recognised Declaration. through the agreements in place to determine whether Consolidated Income Statement requires the terms of each agreement were Injudgement our opinion, and the the accompanying consideration Fofinancial a number Report of thereflected Group is in in the accordance accounting with treatment the Corporations; Actof factors 2001, including: ► We assessed the design and operating (a)► giviTheng terms a true of and each fair individual view of the rebate consolidated financialeffectiveness position of of the relevant Group controlsas at 27 inJune place 20 21 andagreement of its consolidated; financial performance for therelating year ended to the on recognition that date; andand measurement of amounts related to these ► The nature and substance of the arrangements; (b) complyingarrangement with to Australian determine Accounting whether the Standards and the Corporations Regulations 2001. amount reflects a reduction in the purchase ► We performed comparisons of the various Basisprice for of Opinion inventory, requiring the rebate to arrangements against the prior year, be applied against the carrying value of including analysis of ageing profiles and We conductedinventory ouror can audit be in otherwise accordance recognised with Australian in Auditingwhere material Standards. variances Our responsibilities were identified, under thosethe standards Consolidat areed further Income described Statement in ;the and Auditor’s Responsibiobtained litiessupporting for the evidence Audit of; the Financial Report section of our report. We are independent of the Group in accordance with the auditor ► The application of Australian Accounting ► We selected a sample of supplier independence requirements of the Corporations Act 2001 and the ethical requirements of the Standards and the Group’s related agreements and assessed whether the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional processes and controls to these agreements or other documentation Accountants (including Independence Standards) (the Code) that are relevant to our audit of the arrangements. appropriately supported the recognition Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance and measurement of the rebates recorded withDisclosures the Code. relating to the measurement and in the 27 June 2021 Financial Report, recognition of commercial income can be found including an assessment of amounts Wein Note believe 2.4 that Inventor the audities. evidence we have obtained is sufficient and appropriate to provide a basis recorded before and after the balance date; for our opinion. ► We inquired of the Group including business Key Audit Matters category managers, supply chain managers and procurement management as to the Key audit matters are those matters that, in our professionalexistence judg eofment, any non were-standard of most agreements significance in our audit of the Financial Report of the current year. Theseor side matters arrangements were addressed; and in the context of our audit of the Financial Report as a whole, and in ►forming We consideredour opinion the thereon, associated but we financial do not provide a separate opinion on these matters. For each matterreport below, disclosures. our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the Financial Report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited Overview Report2. Impairment on the of Auditnon-current of the assets Financial including Report intangible assets

OpinionWhy significant How our audit addressed the key audit matter Operating and Financial Review Financial and Operating The determination of the recoverable amounts Our audit procedures included an evaluation of We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries of non-current assets including property, plant the following assumptions utilised in the Group’s (collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the and equipment, right of use assets, goodwill and impairment assessment: Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income, other intangible assets requires significant Consolidated Statement of Changes in Equity and Consolidated► Determination Cash Flow of cashStatement generating for the units; year then judgement by the Group. ended, notes to the consolidated financial statements, including a summary of significant accounting ► Forecast cash flows, which were based on policiesImpairment, and assessmentsthe Directors' are Declaration. complex and the Group’s Board approved internal five- involve significant management judgement. The year forecasts; Inassessment our opinion, completed the accompanying by the Group Financial includes Report of the Group is in accordance with the Corporations Actnumerous 2001, including:assumptions and estimates that will ► Long term inflation and growth rates; be impacted by future performance and market

► Discount rates; and Report Directors’ (a)conditions. giving a Thistrue includesand fair viewthe potential of the consolidated future financial position of the Group as at 27 June 2021 impactsand of of its the consolidated COVID-19 pandemic financial performanceon income for► the Otheryear ended market on evidence. that date ; and and expenses. In performing our procedures, we considered (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Key assumptions, judgements and estimates whether the Group’s forecasts considered the applied in the Group’s impairment assessment potential future impacts of the COVID-19 Basisare set for out Opinionin Note 4.1 . pandemic on income and expenses.

WeBased conducted upon the our disclosed audit in sensitivityaccordance analysis, with Australian We Auditing assessed Standards. whether the Our Group’s responsibilities impairment under Remuneration Report thosechanges standards to the keyare assumptionsfurther described applied in thein the Auditor’s models Responsibi were litiesin accordance for the Audit with of Australian the Financial Reportimpairment section test of are our not report. expected We are to independentgive rise to of Accountingthe Group in Standards, accordance as with well theas the auditor independencean impairment requirements of the carrying of valuethe Corporations of the Act mathematical2001 and the accuracyethical requirements of the calculations. of the Group’s cash generating units. Accounting Professional and Ethical Standards Board’sWe APESalso considered 110 Code ofthe Ethics adequacy for Professional of the Accountants (including Independence Standards) (theFinancial Code) that Report are relevantdisclosures to ourregarding audit of the the Financial Report in Australia. We have also fulfilled ourimpairment other ethical testing responsibilities approach, key in assumptionsaccordance , with the Code. results and sensitivity analysis. Financial Report We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in Shareholder Information our audit of the Financial Report of the current year. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the Financial Report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited

3.Report IT environment on the Audit of the Financial Report

OpinionWhy significant How our audit addressed the key audit matter

WeA significant have audited part the of theFinancial Group’s Report financial of Coles GroupWe Limited performed (the Company) procedures and to understandits subsidiaries the IT (processescollectively are, the heavily Group), reliant which on comprises IT systems the with Consolidated environment, Balance including Sheet as procedures at 27 June to 20 identify21, the Cautomatedonsolidated processes Income Statement and controls, Consolidated over the Statementthe Group’s of Other manual Comprehensive and automated Income, controls Ccapturing,onsolidated valuing Statement and recording of Changes of in Equity and Consolidatedrelevant to FCinancialash Flow R eporting.Statement for the year then transactions. ended, notes to the consolidated financial statementsWe, includingtested the a Group’ssummary controls of significant which includedaccounting policiesThis was, and a key the audit Directors' matter D becauseeclaration. of the: assessing the key IT controls over changes made to the material financial reporting systems and In► ourC opinion,omplex IT the environment accompanying supporting Financial diverse Report of the Group is in accordance with the Corporations controls over appropriate access to these Act 2001business, including: processes, with varying levels of integration between them; systems and related data.

(a)► giviMixng of a manualtrue and and fair automated view of the controls; consolidated financial position of the Group as at 27 June 2021 and of its consolidated financial performance for the year ended on that date; and ► Multiple internal and outsourced support (b) complyingarrangements; with Australian and Accounting Standards and the Corporations Regulations 2001. ► Continuing enhancements to the Group’s IT Basissystems for Opinion, includin g new IT systems implemented, which are significant to our We conductedaudit. our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial

Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the 4. AASB 16 Leases Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the FWhyinancial significant Report in Australia. We have also fulfilled ourHow other our auditethical addressed responsibilities the key in auditaccordance matter with the Code. The recognition and measurement of new leases We assessed the Group’s calculations of the Weor leasebelieve amendments that the audit entered evidence into weduring have the obtained financial is sufficient impact and of appropriate the standard to andprovide the a basis foryear our in opinion.accordance with AASB 16 Leases accounting policies, estimates and judgements (“AASB 16”) are dependent on a number of key made in respect of the Group’s right of use Keyjudgements Audit andMatters estimates. These include: assets and lease liabilities, as well as related depreciation and interest expense recognised ► The determination of the lease term; Key audit matters are those matters that, in our professionalthrough the judg Consolidatedement, were Income of most Statement significance. in ► The identification and determination of non- our audit of the Financial Report of the current year.We These selected matters a sample were addressedof new and in modified the context lease of lease components; our audit of the Financial Report as a whole, and in formingagreements our opinion to determine thereon, the but appropriateness we do not of provide► The a determinationseparate opinion of leaseon these extension matters. For eachthe matter judgements below, applied our description including: of how our audit addressedoptions the recognised; matter is provided and in that context. ► The treatment of lease extension options; ► The calculation of incremental borrowing We have fulfilled the responsibilities described in the► Auditor’s The treatment Responsibilities of sub- leasefor the arrangements; Audit of the Financialrate sReport. section of our report, including in relation to these matters. Accordingly, our audit ► The identification of non-lease components; includedKey assumptions, the performance judgements of procedures and estimates designed to respond to our assessment of the risks of materialapplied tomisstatement the Group’s leasesof the Fareinancial set out Report. in Note The results► The of treatment our audit procedures,of adjustments including to lease the procedures2.7. performed to address the matters below, providepayments the basis (both for fixed our andaudit variable opinion rate on the accompanying Financial Report. adjustments);

► The impact of contract variations;

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited Overview

ReportWhy significant on the Audit of the Financial ReportHow our audit addressed the key audit matter

Opinion ► The incremental borrowing rate determined

by the Group; and Review Financial and Operating We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries ► Whether there were any material contracts (collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the containing a lease. Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income, Consolidated Statement of Changes in Equity and ConsolidatedWe selected C aash sample Flow ofStatement existing leasesfor the and year then ended, notes to the consolidated financial statementsevaluated, including movements a summary during of significant the year accounting in the policies, and the Directors' Declaration. right of use asset and the right of use liability. For each existing lease selected, we also In our opinion, the accompanying Financial Report ofassessed the Group the is related in accordance depreciation with the expense Corporations and Act 2001, including: interest expense for the year ended 27 June 2021. (a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021 Report Directors’ We evaluated the effectiveness of the Group’s and of its consolidated financial performance for the year ended on that date; and processes and controls to capture and measure the right of use asset and associated liability (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. including the completeness of the balances. Basis for Opinion We involved our capital and debt advisory specialists to assess the Group’s incremental We conducted our audit in accordance with Australianborrowing Auditing rates.Standards. Our responsibilities under Remuneration Report those standards are further described in the Auditor’sWe Responsibi assessed litiesthe adequacy for the Audit of disclosures of the Financial Report section of our report. We are independent of includedthe Group in inthe accordance Financial R witheport the. auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting5. Inventory Professional existence and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the FWhyinancial significant Report in Australia. We have also fulfilled ourHow other our audit ethical addressed responsibilities the key in audit accordance matter with the Code.

Financial Report We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forAt our27 Juneopinion. 202 1, the Group held inventories of Our audit procedures included the following: $2,107 million. Being one of the most ► Selected a sample of stores and observed significant balances on the Consolidated and assessed the Group’s stocktake KeyBalance Audit Sheet Matters, the Group’s inventory processes and controls throughout the verification process is extensive and occurs Key audit matters are those matters that, in our professionalyear. judgThis eincludedment, were observing of most a significancenumber of in routinely throughout the financial year. Shareholder Information our audit of the Financial Report of the current year. Thesestocktakes matters virtually were addressed through invideo the context of ourThis audit invent ofory the isF inancialheld at geographicallyReport as a whole, diverse and in formingconferencing our opinion technology thereon, butdue we to dothe not providelocations a separatearound Australia opinion onat variousthese matters. retail For each matterGovern below,ment’s our requirements description toof workhow ourfrom audit addressedstores and the distribution matter is centres.provided in that context. home as a result of the COVID-19 pandemic; The Group’s key estimates in respect of We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the inventories are disclosed in Note 2.4 of the ► For the stocktakes we observed, we FinancialFinancial Report Report. section of our report, including in relationassessed to these whether matters. the Accordingly, required adjustment our audit included the performance of procedures designed to respondto inventory to our assessmentdetermined ofby the the risks stocktake of material misstatement of the Financial Report. The resultswas of accurate our audit and procedures, processed including correctly the; procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report. ► Observed and assessed the daily stocktake process at a sample of distribution centres near period end;

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited

Report on the Audit of the Financial Report► Observed a sample of cycle counts at distribution centres and assessed whether Opinion daily counts occurred at distribution centres during the year; and We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries ► For a select number of distribution centres (collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the managed by third parties, we obtained Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income, confirmation of inventory held by the third Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then party. ended, notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors' Declaration. Information Other than the Financial Report and Auditor’s Report Thereon In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations TheAct 2001directors, including: are responsible for the other information. The other information comprises the information included in the Company’s 2021 Annual Report, but does not include the Financial Report and(a) giviourng auditor’s a true andreport fair thereon. view of theWe consolidatedobtained the financialOperating position and Financial of the GroupReview, as Board at 27 ofJune Directors 2021 sectionand andof its Directors’ consolidated Report financial that are performance to be included for inthe the year Annual ended Report, on that prior date to; and the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual report after the date of this(b) complyingauditor’s report. with Australian Accounting Standards and the Corporations Regulations 2001.

OurBasis opinion for Opinionon the Financial Report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial In connection with our audit of the Financial Report, our responsibility is to read the other information Report section of our report. We are independent of the Group in accordance with the auditor and, in doing so, consider whether the other information is materially inconsistent with the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the Report or our knowledge obtained in the audit or otherwise appears to be materially misstated. Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the If, based on the work we have performed on the other information obtained prior to the date of this Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance auditor’s report, we conclude that there is a material misstatement of this other information, we are with the Code. required to report that fact. We have nothing to report in this regard. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Responsibilitiesfor our opinion. of the Directors for the Financial Report

TheKey Directors Audit Matters of the Company are responsible for the preparation of the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the Key audit matters are those matters that, in our professional judgement, were of most significance in Financial Report that gives a true and fair view and is free from material misstatement, whether due our audit of the Financial Report of the current year. These matters were addressed in the context of to fraud or error. our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to addressed the matter is provided in that context. continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the operations, or have no realistic alternative but to do so. Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the Financial Report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited Overview ReportAuditor's on Responsibilities the Audit of the for Financial the Audit Report of the Financial Report

OpinionOur objectives are to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an Review Financial and Operating We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries audit conducted in accordance with the Australian Auditing Standards will always detect a material (collectively, the Group), which comprises the Consolidated Balance Sheet as at 27 June 2021, the misstatement when it exists. Misstatements can arise from fraud or error and are considered material Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income, if, individually or in the aggregate, they could reasonably be expected to influence the economic Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then decisions of users taken on the basis of this Financial Report. ended, notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors' Declaration. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations

Act 2001, including: • Identify and assess the risks of material misstatement of the Financial Report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit (a) giving a true and fair view of the consolidated financial position of the Group as at 27 June 2021 Report Directors’ evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not and of its consolidated financial performance for the year ended on that date; and detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. override of internal control.

Basis• Obtain for Opinion an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an Remuneration Report We conductedopinion onour the audit effectiveness in accordance of the with Group Australian’s internal Auditing control. Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report• Evaluate section ofthe our appropriateness report. We are ofindependent accounting of policies the Group used in and accordance the reasonableness with the auditor of accounting independenceestimates requirements and related ofdisclosures the Corporations made by Act the 2001 Directors and .the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the • Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting Financialand, R eportbased in on Australi the audita. We evidence have also obtained, fulfilled whether our other a material ethical responsibilities uncertainty exists in accordance related to with theevents Code. or conditions that may cast significant doubt on the Group’s ability to continue as a going Financial Report concern. If we conclude that a material uncertainty exists, we are required to draw attention in We believeour auditor’s that the reportaudit evidence to the related we have disclosures obtained inis thesufficient Financial and R appropriateeport or, if such to provide disclosures a basis are for ourinadequate, opinion. to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group Key Auditto cease Matters to continue as a going concern.

Key audit matters are those matters that, in our professional judgement, were of most significance in • Evaluate the overall presentation, structure and content of the Financial Report, including the Shareholder Information our auditdisclosures, of the Financial and whether Report the of theFinancial current Report year. representsThese matters the underlyingwere addressed transactions in the context and of our auditevents of the in aF inancialmanner Rthateport achieves as a whole, fair presentation. and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed• Obtain the sufficient matter is appropriate provided in auditthat context. evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Financial Report. We are We haveresponsible fulfilled the for responsibilities the direction, supervisiondescribed in and the performance Auditor’s Responsibilities of the Group foraudit. the We Audit remain of the solely Financialresp Reportonsible section for our of audit our report,opinion. including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of materialWe communicate misstatement with theof the Directors Financial regarding, Report. Theamong results other of mat ourters, audit the procedures, planned scope including and timingthe of proceduresthe audit and performed significant to audit address findings, the matters including below, any significantprovide the deficiencies basis for our in auditinternal opinion control on thatthe we accompanyingidentify during Fourinancial audit. R eport.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM

Coles Group Limited 2021 Annual Report

Ernst & Young Tel: +61 3 9288 8000 8 Exhibition Street Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001

Independent Auditor's Report to the Members of Coles Group Limited

WeReport also provide on the the Audit Directors of the with Financial a statement Report that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taOpinionken to eliminate threats or safeguards applied.

FromWe have the auditedmatters the communicated Financial Report to the of Directors Coles Group, we Limited determine (the those Company) matters and that its weresubsidiaries of most significance(collectively ,in the the Group), audit of which the F comprisesinancial Report the C ofonsolidated the current Balance year and Sheet are as therefore at 27 June the 20key2 1audit, the matters.Consolidated We d Incomeescribe Statementthese matters, Consolidated in our auditor’s Statement report of unless Other law Comprehensive or regulation Iprecludesncome, public disclosureConsolidated about Statement the matter of C orhanges when, in in E extremelyquity and Crareonsolidated circumstances, Cash Flow we Statementdetermine thatfor the a matter year then shouldended, notnotes be tocommunicated the consolidated in our financial report statementsbecause the, includingadverse consequenc a summary esof ofsignificant doing so accountingwould reasonablypolicies, and be the expected Directors' to outweighDeclaration. the public interest benefits of such communication.

ReportIn our opinion, on the the A accompanyingudit of the FRemunerationinancial Report of Report the Group is in accordance with the Corporations Act 2001, including:

Opinion(a) giving ona true the and Remuneration fair view of the Reportconsolidated financial position of the Group as at 27 June 2021 and of its consolidated financial performance for the year ended on that date; and We have audited the Remuneration Report included in the Directors’ report for the year ended 2(b)7 Junecomplying 2021 .wit h Australian Accounting Standards and the Corporations Regulations 2001.

InBasis our opinion, for Opinion the Remuneration Report of Coles Group Limited for the year ended 27 June 2021, complies with section 300A of the Corporations Act 2001. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Responsibilitiesthose standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor Theindependence Directors ofrequirements the Company of are the responsible Corporations for Act the 2001 preparation and the and ethical presentation requirements of the of the RemunerationAccounting Professional Report in accordanceand Ethical Standardswith section Board’s 300A APESof the 110Corporations Code of Ethics Act 2001 for Professional. Our responsibilityAccountants (including is to express Independence an opinion Standards)on the Remuneration (the Code) Report, that are based relevant on ourto our audit audit conduct of theed in accordanceFinancial Report with Australianin Australia. Auditing We have Standards. also fulfilled our other ethical responsibilities in accordance with the Code.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Ernst & Young Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in Fionaour audit Campbell of the Financial Report of the current year. These matters were addressed in the context of Partnerour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not Melbourneprovide a separate opinion on these matters. For each matter below, our description of how our audit 18addressed August the202 matter1 is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the Financial Report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

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DRAFT 25 COL1858_AR_2021_d25a September 17, 2021 7:54 AM Coles Group Limited 2021 Annual Report

Shareholder Information

Listing information Overview

Coles Group Limited is listed, and our issued shares are quoted on the Australian Securities Exchange (ASX) under the code: COL.

Substantial shareholdings in Coles Group Limited as at 26 August 2021 Operating and Financial Review Financial and Operating The number of shares to which each substantial holder and the substantial holders’ associates have a relevant interest, as disclosed in substantial holding notices given to Coles, are as follows:

Holder Number of fully paid shares Vanguard Group 80,219,497 Blackrock Group 83,226,846

Twenty largest ordinary fully paid shareholders as at 26 August 2021

Number of fully % of issued Directors’ Report Directors’ Coles Group Limited paid shares capital 1 HSBC Custody Nominees (Australia) Limited 335,839,551 25.18 2 J P Morgan Nominees Australia Pty Limited 181,961,182 13.64 3 Citicorp Nominees Pty Limited 94,530,514 7.09 4 Wesfarmers Retail Holdings Pty Ltd 65,362,556 4.90 5 BNP Paribas Nominees Pty Ltd 47,303,599 3.55

6 National Nominees Limited 37,246,513 2.79 Remuneration Report 7 BNP Paribas Noms Pty Ltd 13,149,162 0.99 8 HSBC Custody Nominees (Australia) Limited 10,543,340 0.79 9 BNP Paribas Nominees Pty Ltd Six Sis Ltd 8,370,519 0.63 10 Australian Foundation Investment Company Limited 7,262,500 0.54 11 Citicorp Nominees Pty Limited 5,669,196 0.42 12 Argo Investments Limited 5,290,027 0.40 13 Netwealth Investments Limited 4,402,268 0.33 Financial Report Financial 14 Milton Corporation Limited 2,997,375 0.22 15 CPU Share Plans Pty Ltd 2,979,128 0.22 16 BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 2,592,101 0.19 17 Mutual Trust Pty Ltd 2,350,553 0.18 18 Australian Executor Trustees Limited 1,940,245 0.15 19 AMP Life Limited 1,905,243 0.14 20 HSBC Custody Nominees (Australia) Limited 1,828,432 0.14 Shareholder Information

Distribution of shareholders and shareholdings as at 26 August 2021

Size of holding Number of shareholders Number of shares % of issued capital 1 - 1,000 364,191 110,974,863 8.32 1,001 - 5,000 82,027 174,405,422 13.07 5,001 - 10,000 9,959 69,577,477 5.22 10,001 - 100,000 4,885 97,845,326 7.34 100,001 and over 148 881,126,608 66.05 Total 461,210 1,333,929,696 100

There were 27,897 shareholders holding less than a marketable parcel ($500).

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Voting rights

Votes of shareholders are governed by the Company’s Constitution. In broad summary, but without prejudice to the provisions of these rules, the Constitution provides for votes to be cast:

(a) on a show of hands, one vote for each shareholder; and

(b) on a poll, one vote for each fully paid share.

Unquoted equity securities

As at 26 August 2021, 2,047,837 performance rights with 12 holders were on issue pursuant to Coles’ equity incentive plan.

On-market share acquisitions

During FY21, 1,501,990 Coles ordinary shares were purchased on market at an average price of $17.47 per share for the purposes of various Coles employee incentive schemes.

There is no current on-market buy-back of the Company’s shares.

Corporate Governance Statement

A copy of the Corporate Governance Statement can be found on our website at www.colesgroup.com.au/corporategovernance.

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Corporate Directory

Registered office Coles Share Registry Overview

800-838 Toorak Road Computershare Investor Services Pty Limited Hawthorn East Yarra Falls VIC 3123 Australia 452 Johnston Street Abbotsford Review Financial and Operating Telephone VIC 3067 Australia +61 3 9829 5111 Postal address Website GPO Box 2975 www.colesgroup.com.au Melbourne Chairman VIC 3001 Australia

Mr James Graham AM Telephone 1300 171 785 (within Australia) Managing Director and Chief Executive Officer +61 3 9415 4078 (outside Australia)

Mr Steven Cain Online Report Directors’ www.investorcentre.com/contact Non-executive Directors Website Mr James Graham AM www.computershare.com Mr David Cheesewright Ms Jacqueline Chow Shareholder Calendar* Ms Abi Cleland Remuneration Report Mr Richard Freudenstein Event Date Mr Paul O’Malley Record date for final dividend 27 August 2021 Ms Wendy Stops Final dividend payment date 28 September 2021 Company Secretary Coles Group Limited Annual General Meeting 10 November 2021 Half-year end 2 January 2022 Ms Daniella Pereira Year-end 26 June 2022 Auditor

*Timing of events is subject to change. Report Financial

Ernst & Young Annual General Meeting 8 Exhibition Street Melbourne The 2021 Annual General Meeting of Coles Group Limited will be VIC 3000 Australia held as a virtual meeting via an online platform on Wednesday 10 November 2021, commencing at 10.30am (AEDT). Information on how shareholders and proxyholders can view and participate in the meeting can be found on the Company’s website and in the Notice Shareholder Information of Annual General Meeting.

Coles’ Notice of Annual General Meeting has been released on the ASX Market Announcements Platform.

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